Saturday, March 15, 2008

Investment Advice in Unstable Markets

The stock market, measured by the S&P 500 is down 12.3% this year and down 17.7% from the all time high set last October. During this time, the stock market has been very turbulent, often up big one day and giving those gains back the next day. So what is an investor to do? A recent letter to Vanguard investors gives 4 tips for remaining calm in turbulent markets

1. Maintain a long-term perspective. I’m mixed on this advice. Yes, I do believe in maintaining a long-term perspective in my retirement accounts. However, I’m also a huge advocate of protecting my capital. In a bear market like we are in, sometimes protecting capital should be priority #1. Do you remember the last bear market of 2000-2003? The S&P 500 gave back nearly 50% from the highs. To quote Warren Buffet. "The first rule is not to lose. The second rule is not to forget the first rule. "
2. Tune out the headlines. Last month I wrote about the dangers of getting your investment advice from CNBC.
3. Be balanced and diversified. I maintain a diversified portfolio with a blend of index funds.
4. Have a plan and stick to it. It’s important to write down your financial goals. If you don’t know your investment goals, how can you possibly make the best investment decisions?

So what are you doing in this turbulent market? Are you sticking with your plan?


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The articles on Daily Money Tips reflect the opinion of its author only and should not be considered professional financial advice. Please consult a financial professional before making any major financial decisions.