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Answer:
Given the current economic situation and accompanying market upheavals, we are going to run several columns covering what you, as an individual investor, should know and what steps you might consider taking.
Keep in mind that there are two specifics we cannot accurately address: when the market will recover (although it will eventually do so) and what you should do in your particular account. The latter depends upon your age, income, job security, net worth and financial obligations.
(1) The first bit of advice is do not panic. No crisis situation, be it about one’s health, children, job or investments, is ever helped by panicking and making shoot-from-the-hip decisions.
Nor do you want to necessarily do what you think everyone else is doing. Remember when you told your parents, “but all the other kids are doing it” and your parents responded, “that doesn’t make it right for you.” That same philosophy applies here. Just because it appears that “everyone else” is selling, you want to make thoughtful, not high-anxiety decisions.
Therefore, keep in mind that the market always makes a recovery; it is the length of the recovery that is in question, not the fact of a recovery. In some ways the market is fickle. For example, this past week, it’s been up and it’s been down, based on the latest news out of Washington about the famed bailout plan.
You probably came to BuyandHold initially for two reasons. One because you could invest by dollar amounts, and comfortably small dollar amounts, at low costs. And two, because you believe in buying and holding, not jumping in and out of the market.
(2) Be informed. My suggestion is to monitor the news, but not more than once a day (unless you’re a day trader and I hope you’re not!). If you’re glued to your TV or pc screen, you will put yourself in a doom and gloom frame of mind and loose a balanced perspective.
(3) Third, take a look at your financial picture. If you’re thinking of selling some of your stocks, ask yourself why. What was your initial goal (or goals)? If one was to save for your retirement which is not immediate, then you may want to leave things as they are. If you need cash for to solve a current problem, such as meeting a college tuition bill or paying your mortgage, then selling a portion of your holdings appears more logical.
(4) Fourth, find other sources. If you have faith the market will recover, based on government intervention, but your investments holdings are down, look for ways to cut costs to compensate and at the same time, boost your checking and savings accounts.
Instead of a bailout:
- Reduce phone bills. How many cell phones is your family using? Can you operate without several of them or without a land phone? All phone costs have a way of quietly creeping up and up.
Also, check your cable and satellite TV plans. You might be able to lower costs here as well.
- Cut out extras. At least temporarily. Some of the luxuries that might go or be reduced are: lawn and pool services, dining out, spa and salon visits, fresh flowers, expensive wines, new clothes and appliances, remodeling your kitchen, bathroom, office.
If you need clothes for the kids, wait for sales. Bring your lunch to work several times a week. Why not be old-fashioned and carry a thermos and forget those lattes-to-go for a while.
- Pay credit card bills on time. And in full. This will save you on both interest payments and late payment penalties.
- Get lower cost auto, life and homeowner’s (or renter’s) insurance. You can negotiate a lower rate if you put all your policies with one company. $TIP: Compare rates for auto, life, homeowner’s, health, dental and business coverage at: www.insure.com.
(5) Think about growth. A down market always presents buying opportunities – be it in houses, vacant lots, farm land, collectibles, automobiles, commodities, stocks, even boats. If your research convinces you that some of the companies you own continue to be well run, have strong management teams in position, are not burdened by debt and offer products or services for which there is an ongoing demand, you may want to add shares to your portfolio, taking advantage of the low prices.
Good luck! |
