Investing During Volatile Times
Volatile markets are interesting times and challenging ones to invest in. As of yesterday, the S&P 500 was up 51.5% from the lows of March 2009 at a high for the year. This sounds really great, but if you consider that even with this recovery, the market is still down more than 35% from its peak of October 2007. The other characteristic of this market is that one-day and one-week changes can be quite dramatic, so much so, that these sharp moves can paralyze even experienced, professional investors into inaction.
When you look at the investment advice available, rarely do you find things that say, what to do when the market runs up by over 50%, or what to do if you had liquidated your invetments 6 months ago and have been watching the runup from the sidelines. In fact, I find it interesting that most personal financial columns have avoided discussing what investmet steps to take. I offer the following suggestions:
--Don’t panic – (in nice friendly letters). One of the problems when markets are down sharply is panic selling. The other, when markets stage a sharp rebound is panic buying. Generally speaking, making an investment decision when you feel panicked leads to an unhappy result. In know, I’ve been there.
–Look at your overall asset allocation — rather than focusing on the ups and downs of specific holdings, look at your overall asset allocation. Marginal purchases should be used to even these out.
–Be aware of cash levels – one of the biggest drivers of market moves are pools of cash that are then deployed. Being aware of cash levels of both individuals and money managers is an indicator of future market moves.
–Keep in mind the stock market leads the economic news — too many people, including the financial press, expect economic news and stock market moves to be coincidental. Generally speaking, the market moves in anticipation of news and thus usually turns before the statistical data.
–Turn off the tv — sometimes too much information interferes with good decision making.
posted at this week’s Carnival of Personal Finance
[...] ElizabethG (Modern Gal) from Modern Gal presents Investing During Volatile Times. [...]
Asset allocation is a huge thing right now. A year ago, there were a lot of people who didn’t see a problem investing in 100% stocks, and have changed their tune after seeing the recent market volatility. I’m looking at doing a mix of stocks, bonds, real estate and personal loans through Lending Club
Hi Matthew, agree with you that asset allocation is finally getting some attention. Problem is, many people switched out of their 100% stock allocation, just in time to miss the recent market run up.