Investing in the stock market is a lot like driving on a long road trip.  At some point, you’re going to run into pot holes and rough patches.  When that happens, you should definitely drive with more caution, but you have to keep on going if you want to reach your destination.

Similarly, if you’re investing for long-term goals such as retirement, you will encounter some market volatility, probably several times along your journey.  While you may be tempted to pull over and wait out the rough times, it will delay or may even prevent you from reaching your goals.

So what should you do when the road to investing gets bumpy?

Buy Low, Sell High:  The whole premise behind investing is to buy low and sell high.  You can’t do that if you pull out of the market or stop investing when the market goes down.  If you’re investing for the long-term, you should be glad when the market is down, because then stocks are “on sale” and you can pick up more shares at a lower price.  Who doesn’t love a good sale?

Diversify: One of the best ways to defend your portfolio against market losses is to have a portfolio that is properly diversified.  If you review the history of the stock market, you’ll see that the best performing assets vary from year to year and that it’s not easy to predict which asset class will perform well in any given year.  Therefore, by having a mix of asset classes, based on your risk tolerance, your goals and your timeframe, you are more likely to meet your goals.  In addition, having a mix of asset classes reduces your risk of loss, since you won’t have all of your eggs in one basket.

Continue Reading When the Road to Investing Gets Bumpy

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.

My friend, Cara Mirabella of The Household Helper interviewed me this week on her podcast about the current situation in the economy.  It’s basically a lesson in Economics 101 so you can better understand what the media is making such a fuss about.

We talked about how the media focuses on the negative, how the election year affects our economy, what a recession is, and what economists think 2008 has in store for us.

We also talked about what we should be doing now (if anything) and what we can do to take advantage of the ‘down’ market. We also talked a little about the upcoming tax rebate check!

Would you be surprised to hear that 2007 was a winning year on Wall Street?  My guess is that most people would be surprised to hear this.  Most people tend to focus on the negative, not the positive.  But in reality…

• The Dow Jones ended up 6.4%
• The S&P 500 ended up 3.5%
• And the Nasdaq ended up 9.8%

These may not be earth-shattering numbers, but after the volatility in the second half of 2007, the fall of the dollar and the rise in oil prices, these are solid returns for ‘07.