- Don’t fixate on the news. The more often you update yourself on the market’s fluctuations, the more volatile and risky it will appear to you — even though short, sharp declines of 5% or more are common. Fixating on fluctuations in the short term will make it harder for you to remain focused on your long-term investing goals.
- Don’t panic. While stocks are certainly not cheap, they aren’t wildly overpriced, given today’s levels of interest rates and inflation.
- Don’t be complacent. You should use the latest turbulence as a pretext to ask yourself honestly whether you are prepared to withstand a much worse decline. Did you lose sleep Friday night or over the weekend worrying about your portfolio value? If so, we need to talk AS SOON AS POSSIBLE
- Don’t get hung up on the talk of a “correction.” A correction is typically defined as a decline in price of 10% on a widely followed index like the Dow Jones Industrial Average. The term doesn’t have official status, however. Markets recover from most corrections within 3 or 4 calendar quarters. A market decline of 10% has no real significance in and of itself. What matters is the outlook for the future; that doesn’t depend on whether the market is down 10.2% rather than 9.8% – see a discussion under “HEAT MAP” below for the outlook for the U.S.
- Don’t think someone on TV—or me –or anyone else–knows what will happen next. After a market drop, or at any other time, no one knows what the market will do next. Stocks could drop another 10% from here, or another 25% or 50%; they could stay flat; or they could go right back up again. Diversification and patience — and, above all, having a long term plan in place — are your best weapons against this ever present uncertainty. (Source, in part: Wall Street Journal)
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August 24, 2015 | Weekly Commentary