It is obvious to me that many are feeling concern about the recent steep slide in the stock market. The market has now corrected over 10% from its recent high resulting in a very volatile week for investors, bringing some memories not felt since 2008. In times of increased volatility such as this, it’s important to revisit some points that are key to a successful investment strategy and a list of things that you can do now to improve investment results.
Here are Seven Things that you can do now:
Take a deep breath and …. DO NOTHING. Stick to your plan. The really smart people aren’t doing anything now; their strategies portfolios are already ready for the possibility of a market downturn. This is NOT the time to panic and get out of the equity market. Market-timers become obsessed with the market – which is a waste of time and produces needless anxiety for no long-term gain. Market crashes are normal. Volatility in markets is normal. Volatility is the price a market investor pays for the possibility of a return greater than the 1% return a safe and secure savings account will earn.
Enjoy your life and take care of yourself. Focus on the things that make your life really RICH – your family, your friends and the things you love to do and on the things you can control. You can’t control macroeconomic factors in the world.
Keep dollar-cost averaging into the stock market. Especially for younger people, this is the time to be buying stocks on a regular basis – not trying to time the ups and the downs. Keep on your rebalancing schedule. When stocks are dropping, it’s hard to invest new money into the market. But doing so can give you some of the best deals you’ll ever get. Those who did so during the 2009 market swoon were richly rewarded in the ensuing months and years. The big moves happen during the darkest days. Since 1928, missing just the 20 best market days cuts total returns in half. Moreover, every one of those best days occurred during periods of market chaos — all within days of some of the market’s worst sessions.
Make sure that your emergency fund is adequate. Having sufficient emergency funds is critical to keep you from having to liquidate stocks after they’ve dropped. Having enough set aside for three to six months of expenses gives you a cushion against what may happen to your job and your portfolio.
Remember the Bad Times: Sounds odd, doesn’t it? Who wants to recall the fears of 2008 and early 2009? But, it is important to remember that those who held on came through far better than those who panicked and fled the markets. The market always carries a positive expected return. You don’t always get it, but it is always there. You cannot obtain the positive expected outcome of the market unless you are in the market—buying, holding, bearing and rebalancing risk. We know the drill, we have suffered extreme volatility in the past, and we have endured.
Remember Your Time Horizon: The best time to be in the market is when you have the money and the best time to be out of the market is when you need the money. If you need the money right now, the stock market is not the right place for you. But, if you have a time horizon of four or more years, you can withstand some volatility to increase your risk-adjusted returns.
Return to these basics:
1. Live within your income 2. Have appropriate emergency funds 3. Have NO consumer debt 4. Live in a house that you can afford 5. Minimize your tax bill to the degree that you are allowed. 6. Be globally invested to minimize risk 7. Carefully select an equity to fixed income ratio for your portfolio that is appropriate for your life situation – and then stick to that mix.