Market Volatility

When I worked as a broker, I can't tell you how many people would call in a panic any time the market took a substantial drop.  “You people never told me my mutual fund was invested in the stock market!” or “You people never called me to let me know the market was going to drop and I should get out!” and of course “I told you people I never want to lose any money.”

 Let’s clear up a few things:

 No one ever wants to lose money …. ever. No broker in their right mind wants you to lose money either – it doesn't make our job any easier!

The market ALWAYS goes up and down. If you invest in the market, you run the risk of losing money; however, the market has never dropped to zero and stayed there. Besides, over time the stock market has gone up more than every other means of investing.

Brokers are not fortune tellers. Certainly we can talk about trends in the market, but if I could tell you the exact day/time the market is going to drop, I’d be floating on a yacht in the Bahamas!

Everyone has a different comfort level with the stock market. Some of my clients were invested entirely in the stock market and had iron clad stomachs. Some would rather hide their money in a mattress and never even look at the market. Most people fall somewhere in the middle. The trick to handling the ups and downs of the market, is to make sure you're not invested outside your comfort zone.  

Let’s say you’re 28 and investing in a retirement account, you should be invested entirely in the market and not worry about any of the up and downs since you have so much time to smooth out the volatility. However, let's say you’re 60 and will be using your retirement account in the next couple of years for retirement, you're account should only be about 20-50% in the market.  In general, if you need to use the money in the next year or two, you shouldn't be in the market at all.

If you find you have a stomach ache and you're on pins and needles every time the market dips, chances are your market exposure isn't in-line with your goals. Give your stomach a rest and invest in balanced or growth/income funds, stocks with low volatility and big dividends like utility stocks or even the preferred stock index PFF, and of course for short term needs use money markets and CDs. Keep in mind, you won't have explosive growth with this strategy, but then again you won't have an ulcer either.