When Will Things Get Back To Normal?

That’s what clients are asking (or at least thinking) about the current stock market.

Well, I hate to break the news, but this IS normal!  The stock market goes up AND down.  It’s a cycle, made up of periods of expansion and periods of retraction, of good times and not-so-good times.

The market goes up, and periodically it needs to retract.  Right now we are in a retraction.  However, those who adopt a reasonable investment policy, diversify and rebalance their portfolio as needed – these folks have positive long-term investment experiences.

Those people who “forget” that the market is a cycle and panic when the market goes down will have negative experiences because they make decisions based on fear that cost them money in the long run.

So while this may be “normal”, there are some things you can do to improve your finances while we are waiting for the next expansion period in the stock market cycle:

• Make sure you are properly diversified.  You should have an overall allocation that matches your risk tolerance, your goals, and your time frame.
• Don’t try to time the market.  People who try to time the market often miss the best days (or weeks or years), causing them to lose out of hundreds, thousands or even tens of thousands of dollars in growth in their portfolio.
• When reviewing your portfolio, remember to view the big picture.  Some investments/accounts are more aggressive than others and will increase/decrease faster than others.  You need to view the portfolio as a whole to get a true understanding of how your portfolio is performing.
• Review your portfolio expenses.  Do you have funds with commissions or high annual operating expenses?   The less you pay in fees, the more money you have to work for you.
• If you are retired and are already withdrawing from your nest egg, now’s a good time to review your spending.  Are there any areas you can cut back on?  Do you have any hobbies or interests that can be turned into money making ventures?
• If you’re in the accumulation phase, now’s a great time to increase your retirement contributions.  Remember your goal is to buy low and sell high… well now is a great time to buy low!

If you’d like to learn more about the economy and the stock market cycle, here are some good articles for you to read:

Understanding Cycles by Investopedia – while I don’t agree that you should be timing the market cycles, this article does a great job explaining the economic and market cycles.

Presidential Elections and Stock Market Cycles – an interesting article about how the presidential elections and stock market cycles relate to each other.

How to Profit from Maket Volatility by Christine Benz of Morningstar.com – this is one of my favorite websites, click on the Personal Finance tab for tons of articles on a variety of personal finance issues.