Even a diversified portfolio is no guarantee
that you won’t suffer losses, of course. But
diversification means that just because
the S&P 500 might have dropped 10% or
20% doesn’t necessarily mean your overall
portfolio is down by the same amount.
6. Consider Playing Defense
During volatile periods in the stock market,
many investors reexamine their allocation
to such defensive sectors as consumer
staples or utilities (though like all stocks,
those sectors involve their own risks, and
are not necessarily immune from overall
4. Remember this too Shall Pass
market movements). Dividends also can
help cushion the impact of price swings.
The financial markets are historically
According to Standard & Poor’s, dividend
cyclical. Even if you wish you had sold at
income has represented roughly one-third
what turned out to be a market peak, or
regret having sat out a buying opportunity, of the monthly total return on the S&P 500
since 1926, ranging from a high of 53%
you may well get another chance at some
point. Even if you’re considering changes, during the 1940s to a low of 14% in the
1990s, when investors focused on growth.
a volatile market can be an inopportune
time to turn your portfolio inside out. A
7. Continue to Save
well-thought-out asset allocation is still
the basis of good investment planning.
Even if the value of your holdings fluctuates,
regularly adding to an account designed for
5. Learn From Your Mistakes
a long-term goal may cushion the emotional
Anyone can look good during bull markets; impact of market swings. If losses are
smart investors are produced by the offset even in part by new savings, your
inevitable rough patches. Even the best bottom-line number might not be quite so
investors aren’t right all the time. If an discouraging.
earlier choice now seems rash, sometimes
the best strategy is to take a tax loss, learn
from the experience, and apply the lesson
to future decisions. Expert help can prepare
you and your portfolio to both weather and
take advantage of the market’s ups and
downs.
Words to Ponder
“Investors should remember that excitement
and expenses are their enemies. And if they
insist on trying to time their participation
in equities, they should try to be fearful
when others are greedy and greedy when
others are fearful.”
—Warren Buffett
If you’re using dollar-cost averaging-investing a specific amount regularly
regardless of fluctuating price levels--you
may be getting a bargain by buying when
prices are down. However, dollar cost
averaging can’t guarantee a profit or protect
against a loss. Also consider your ability
to continue purchases through market
slumps; systematic investing doesn’t work
if you stop when prices are down. Finally,
remember that the return and principal
value of your investments will fluctuate
with changes in market conditions, and
shares may be worth more or less than their
original cost when you sell them.