Personally, I know it's October when my husband starts wringing his hands and moaning about why we didn't dump such-and-such when the kids went back to school. If anything, he's predictable.
Just as predictably, I resurrect the following well-worn pieces of wisdom when the wailing begins. You've seen it all before, but it's worth getting out of mothballs as the cold weather hits. Remember, December is just around the corner, and years seldom end downbeat in the short-term (even if the entire year reports a loss), so hang in there.
What to Consider When the Market Drops
The long-term market has done well ...
Despite several down cycles, Standard & Poor's tells us that the stocks of the Standard & Poor's 500 Index (S&P 500) have returned an average of more than 13% yearly since the 1920s, besting all other asset classes. This will be important to keep in mind as you read on.
... corrections are normal
Despite this long-term performance, corrections are very, very common. Defined as a drop of at least 10%, corrections have occurred several times on the S&P 500,with Standard & Poor's noting that this happened twice in 1998 alone.
... but we may be due for a sedate year
The S&P 500 can boast of double-digit percentage gains over the past five years or so, but this IS due to stop. As of press time, the S&P 500 is actually down more than 5% since the end of 1999. This doesn't mean recovery isn't in the cards, but a 20%-plus gain for the year seems unrealistic.
A Look at YOUR Portfolio
Regardless of where the latest market turmoil will take us, pauses such as these are good times to sit down and study how well your money is situated to ride through these and any other changes. Are all your investments in stocks or stock mutual funds? Do you own just one stock mutual fund? Have you invested in just a few high-tech stocks, hoping for the "big kill?"
If you are a long-term investor, none of this need bother you if you don't need your retirement money right away. However, if you cannot afford to sustain a big loss - say you're within five years of retiring, or are already living off your savings - then it's time to decide if you need to hold on to the "losers" until they bounce back, or if some of these holdings will probably never regain health again. In this case, dump the unpromising stocks in favor of bonds, T-bills or money market funds.
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