If you have just begun to nibble in the stock market but have gotten hurt in the recent downturn in your investments, perhaps regrouping is important at this point.
Sometimes discretion is the better part of valor, and you need to take stock (no pun intended) of your portfolio and decide if you wouldn’t be wiser just selling off your equities and waiting out the stormy weather of a bear market.
If the market really does turn against you, remember that it is very difficult to recoup the money you’ve lost when your stocks go down, down, down in value.
Sometimes it can take months and months or even years to get back to break even. So, the best advice if you are uncomfortable investing in stocks right now – whether or not you have already done so or are anticipating doing so in the near future – is to hold off.
Of course, you cannot time the market perfectly to buy just when everything has hit rock bottom and then starts to go up. This would be great if you could do so! It would be like knowing exactly when the bottom of the housing market has been attained, buying a house at the very lowest price possible, and then patting yourself on the back as a genius as you watch the house appreciate in value.
But, market timing is almost impossible, even for expert. Market timing means buying at the lowest possible point and riding a stock portfolio up, up, up. It is nothing less than buying low and selling high, the mantra of every good and proficient investor.
Many advisers would tell you it is best to buy good stocks no matter what the economy or stock market are doing and just sit tight. But when things get really bad, when the economy doesn’t look to improve during the next year or so, you might be better off just parking your money into a CD or money market, admitting that your return is going to be low but at least it’s not going to be a minus return, and just sitting tight until things improve.
Things always improve. As a matter of fact, if the economy doesn’t eventually improve, your investment portfolio is going to be the least of your worries. Jobs will fall away, gasoline and food prices will continue to rise, and things will get tougher and tougher. This is a scenario in which you survive as best you can, and your investment portfolio will probably help you get through the tough times.
But for the most part, if the past is any indication, economies cycle up and down, jobs fall away and then return in force, prices come down for the necessities of life. It’s just the nature of things, and unless something occurs to disrupt this cyclical balance (like a major terrorist attack comparable to September 11 or a natural disaster that devastates a specific part of the country), you can expect that eventually equilibrium is achieved once more and life goes on.
So the secret, then, is not to panic when the cycle is working against you. Find your comfort level in terms of what kind of losses you’re willing to sustain and know you can make back any money lost in the future. This will largely depend on your age and financial situation, your career and job, and whether or not you suspect Aunt Tillie is really going to leave you that valuable art collection when she kicks the bucket, as she promised.
But above all, don’t panic. Let me emphasize this: Don’t panic! If I keep repeating it, it’s because it is such an important concept. Panic and financial savvy have no connection to one another. In fact, the more you panic, the more dangerous your actions might be, actions that could penalize you for years to come.
Think clearly. Be logical. Ask the advice of people who aren’t as emotionally attached to your portfolio and investments as you are … which is just about everyone but you! If all else fails, do nothing. It’s far better to do nothing, actually, than to make bad decisions based on panic and emotion and wind up regretting later what you did.
So spend a bit of time looking over your portfolio and the assets that comprise it. If the market continues to go downward, think about which stocks you own would do better as cash instead of equities. Find the best interest rates for your money, but make sure it’s short term. You don’t want to tie up your money in a 5 year CD only to discover that in a year, equities are soaring again.
Just be savvy and patient and logical, don’t panic, and no matter what the market or economy look like, you’ll do fine.