8. Use Cash to Manage Your Mindset 10. Look in the Rear-view Mirror
Cash can be the financial equivalent of taking
deep breaths to relax. It can enhance your
ability to make thoughtful decisions instead
of impulsive ones. If you’ve established an
appropriate asset allocation, you should
have resources on hand to prevent having to
sell stocks to meet ordinary expenses or, if
you’ve used leverage, a margin call. Having
a cash cushion coupled with a disciplined
investing strategy can change your
perspective on market volatility. Knowing
that you’re positioned to take advantage
of a downturn by picking up bargains may
increase your ability to be patient.
9. Remember Your Road Map
Solid asset allocation is the basis of sound
investing. One of the reasons a diversified
portfolio is so important is that strong
performance of some investments may help
offset poor performance by others. Even
with an appropriate asset allocation, some
parts of a portfolio may struggle at any given
time. Timing the market can be challenging
under the best of circumstances; wildly
volatile markets can magnify the impact
of making a wrong decision just as the
market is about to move in an unexpected
direction, either up or down. Make sure
your asset allocation is appropriate before
making drastic changes.
Words to Ponder
“Most of the time common stocks are subject
to irrational and excessive price fluctuations
in both directions as the consequence of
the ingrained tendency of most people to
speculate or gamble ... to give way to hope,
fear and greed.”
—Benjamin Graham
If you’re investing long term, sometimes it
helps to take a look back and see how far
you’ve come. If your portfolio is down this
year, it can be easy to forget any progress
you may already have made over the years.
Though past performance is no guarantee of
future returns, of course, the stock market’s
long-term direction has historically been
up. With stocks, it’s important to remember
that having an investing strategy is only
half the battle; the other half is being able
to stick to it. Even if you’re able to avoid
losses by being out of the market, will you
know when to get back in? If patience has
helped you build a nest egg, it just might be
useful now, too.
11. Take It Easy
If you feel you need to make changes in
your portfolio, there are ways to do so short
of a total makeover. You could test the
waters by redirecting a small percentage of
one asset class to another. You could put
any new money into investments you feel
are well-positioned for the future, but leave
the rest as is. You could set a stop-loss
order to prevent an investment from falling
below a certain level, or have an informal
threshold below which you will not allow
an investment to fall before selling. Even if
you need or want to adjust your portfolio
during a period of turmoil, tho