Amid a crashing U.S. dollar, a roller-coaster stock market, a massive takeover of one of the nation's largest brokerage firms and an economy teetering on the brink of recession, what's an individual investor to do? What should you expect in today's troubling market? Are there wise moves to make now? Some questions and answers:
My portfolio has lost almost 20% of its value in the last couple of months. I don't think I can handle more losses. Do I sell?
That depends on why you feel you can't handle further losses. If you need your stock market money for expenses in the next six months to one year, you should sell, said Ken Kamen, president of Mercadien Asset Management in Princeton, N.J. That's because that money should never have been in stocks in the first place.
But if you have long-term money invested in a variety of stocks and you simply hate the discomfort of the financial turmoil, hang tight. "The biggest mistake people make is making rash decisions," Kamen said Monday. "I have been telling my clients today that they need to shut off their computers and go for a walk."
--
Everybody says "hang tight," but I remember that in 2000, after the market's initial jolt, the slide continued for two years. Wouldn't it have been smarter to sell before all the bloodletting? Wouldn't that have saved the long-term value of my portfolio?
If you managed to sell before the bloodletting, and get back in before the boom, sure. But no one manages that consistently. Over the last 10 years, 75% of the best days for the Standard & Poor's 500 index have come within two weeks of the worst days. No one knows when either is going to strike. You don't want to get out on the worst day and miss the best.
--
I feel like I should take some action. Where should I start?
Two things. First, if the market volatility has seriously disturbed you, write out a "worst-case scenario," suggested Brent Kessel, author of "It's Not About the Money" (HarperCollins, 2008) and co-founder of Abacus Wealth Management in Pacific Palisades.
People often panic because they dwell on the worst that could happen without taking the next step and asking what they would do if the worst actually happened. If your portfolio dropped in value by 50%, how would it affect your life? Would it derail or delay your retirement? Does it mean that you would have to scale back your plans a bit? If you think through the next step after that worst-case scenario, you might find it's not that scary, Kessel said.
