Does the market have you feeling squeamish?

As you read the headlines and hear the news, it’s almost impossible to avoid feeling a bit squeamish in today’s volatile market.  You’re probably wondering what’s in store for 2008 after such a bumpy first few weeks. Unfortunately, it’s impossible for even the most brilliant economists to accurately predict the future.

The most important thing you can do during volatile market times is to have a plan, and to NOT make rash decisions based on emotion.  During volatile markets, planning is essential to minimize your stress level.  That doesn’t mean that you won’t feel nervous if your investments decline, but focus and confidence will help you fight the natural human tendency when it comes to your own nest egg to sell when the market is down. Remember the old adage "Buy low, sell high"?  Now is the perfect time to "buy low".

A well diversified portfolio is one of your best allies when markets
are volatile. Remember, you are investing for the long term; even if
you are retired your investment horizon could still be 20+ years.
Market downturns can be great buying opportunities for the long-term
investor. For example, your regular 401K contributions this month are
purchasing more shares than 6 months ago. When you actually need these
funds in 5, 10, or 20 years, chances are very good they will have
significantly increased in value.  So by buying when the market is low,
you are actually leveraging your money to work harder for you in the
future.

On the other hand, if you are reaching the end of your accumulation
years and/or entering the distribution phase of your life, you will not
want to make any rash decisions based on the market’s short-term
volatility. The worst thing you can do is to fall prey and "sell low"
because you are panicked.  So, give yourself a 10 day breather after
any big market event - whether up or down - and give me a call before
you make any buy or sell decisions.  There may be some tweaking we can
do to your portfolio to help you get through the volatility, without
selling out when the market is down.    

No matter which stage of investing you are in, the message I am
trying to communicate to you is this: if your financial plan and
investment strategy was sound a week ago, it is still sound today.
Unless something has changed in your life, it is unlikely that you
should take radical action. If you feel like your portfolio does not
reflect your goals or risk tolerance, then now may be a great time to
schedule a financial checkup to review your portfolio.  Otherwise,
remember that you are investing for the long-term, and this short term
volatility will eventually pass.

Expect the market to be volatile this year.  In addition to the
recent recession fears (the media is not our friend in this case), we
are in an election year, so expect more volatility in 2008.  However,
this too shall pass!  Keep focused on your goals, post them in plain
sight and review them often.

Probably the best advice I can give you is something I heard a CNBC
analyst say this morning (while we waited for a low opening on Wall
Street): "If you’re investing for more than 12 months, you should turn
the news off, it doesn’t affect you today".