It was sick day on Wall Street Wednesday, but rest assured your portfolio has not caught a fever. Here are five tips for surviving the market mayhem.
Yesterday was a tough day on Wall Street. At one point the S&P 500 fell 3%. The Dow fell as much as 460 points.
News media outlets began trotting out the pictures of downtrodden Wall Street traders, their faces buried in their hands.
Those pictures were still up, by the way, when the S&P closed down only 0.81%. Apparently some investors saw opportunity in the selloff and jumped in. Good for them.
Why all the volatility? A combination of things. A Reuters story listed these reasons for the carnage: “slowing global growth and how central banks will respond, a glut of oil supply that has slammed crude futures, and the Ebola outbreak.”
The Ebola outbreak.
In no way do I mean to disparage the effects of this deadly disease, but I can tell you this with confidence right now: Your portfolio is not infected with Ebola.
If you were staring at all the red in your portfolio yesterday and thought, “I think it has a fever. This could be bad,” and then sold off a bunch of positions, maybe it’s you that’s sick, not the stocks you own. Trust me, they are not thinking about the Ebola outbreak.
It’s no fun to see your paper winnings declining or your retirement savings shrinking a little bit. But you have to keep it all in perspective: We have had a great five years of outsized returns. And if this turns into a full-blow correction, it’ll give you a chance to buy some great companies at better prices.
So what should you do?
1) Take a deep breath
Take a deep breath and then buckle up. We might be in for a wild ride. But panic never helped anyone. It’s not a time to lose your cool.
2) Don’t put your rent money in the market
Don’t invest any money you’ll need in the next three years in the market – preferably five. A ten-year time frame is even better because over 10 years stocks outperform all other asset classes.
3) Look at your companies, not their prices
If you really want to examine whether or not to continue holding companies you own, look at their fundamentals, not their stock price. Is the story still the same as when you bought it? Does management still have a vision that makes sense to you? Are they growing revenue and earnings?
4) Dollar cost average
There’s no better time to be dollar cost averaging than when the market is as volatile as it has been. Set up a consistent plan for stock or fund purchases. If prices keep dropping, you’ll be getting better deals each time you buy.
5) Tune out the noise
Turn off your TV. Shut off your computer. Go out and enjoy the fall weather. Watching CNBC all day will just make you crazy. If you have a long-term plan for your money, stick with it. Sometimes the best thing you can do in times like these is nothing.
This too will pass. We don’t know when. But panicking will not help you grow your wealth for the long term. Keep a clear head and try to stay calm.
You can certainly worry about Ebola, but that’s a health issue, not a financial one right now. You would be better off buying a hazmat suit than selling your stocks.
Bob Bobala is the managing editor of Wyatt Investment Research.
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