Cents and Sensibility
Cents and Sensibility
All Stock market trends end,
so be preparedQuestion: I've lost money in my stock portfolio during the past two years and feel discouraged. It doesn't look like things are getting better. Should I get out?
Answer: Sooner or later, all stock market trends start to change direction -- and when that happens, you'll want to be prepared.
Sadly, some investors make exactly the wrong moves during any given market trend. In the midst of a long bull market, some investors gain so much confidence that they keep pouring their dollars into investments that have already soared to record highs. Conversely, a prolonged bear market can cause some investors to act in an unduly pessimistic manner -- so much so, in fact, that they may head to the "sidelines" to wait for better times.
This type of emotional investing frequently leads to bad decision-making. For example, investors who jump out of a long bear market may end up missing the early stages of a recovery -- and that's often when the biggest gains are recorded. Unfortunately, neither you nor anyone else can pinpoint precisely when today's bear market will become tomorrow's bull market. However, you can still position yourself for the next uptrend by following some investment techniques that are valid during all types of markets:
>> Stay invested. If you have a long-term time horizon, you need to stay invested all the time. If you pull out of the market when it's been down for awhile, you won't have your money working for you when prices start going up again. Plus, good investment opportunities are still available in "bear" markets.
>> Stay diversified. Even if you make no changes, your portfolio can become over-concentrated in a few areas if the value of a particular asset, or group of assets, rises or falls significantly during market run-ups or declines. When that happens, you may want to rebalance your portfolio so that it's once again properly diversified.
>> Stay disciplined. Try to avoid "start-and-stop" investing. Instead, try putting the same amount, in regular intervals, into your investments. By doing so, you'll buy more shares of an investment when the price is low, and fewer shares when the price is high. Although this technique won't guarantee you a profit or protect you from a loss, it should help you become a more disciplined investor.
Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at: gsteele2@pixi.com