How to deal with a volatile market
- Alan Lavine and Gail Liberman
Over the past few months, the stock market has been bouncing around like a basketball. How to cope?
Bob Jazwinski, chair of American Institute of Certified Public Accountants Personal Finance Specialist Executive Committee, has these suggestions:Don't put all your eggs in one basket. Instead, spread your assets across a variety of investments. Ideally, a decline in one type of asset should be offset by a gain in another. One way to do this is to determine the investments that are appropriate for you and allocate a certain percentage of your investment dollars to each. Example: If you're in your thirties, you might consider putting 70 percent of your money in stocks, 20 percent in bonds, and 10 percent in money funds. Consider using a worksheet or an online calculator to help create this type of plan.Focus on long-term investing goals and your overall holdings. Don't pay as much attention to day-to-day returns.Before changing your investment strategy, make sure you're doing it for the right reasons. How you choose to invest your money should be consistent with your financial objectives and how long you have to invest. Still have years to invest? Keep in mind that stocks have historically outperformed many types of investment over time. If you move all your money into conservative investments, you've not only locked in your losses, but you've also sacrificed the potential for higher returns.View the silver lining of a down market as your opportunity to buy shares of stock at lower prices. If you simply invest money at regular intervals over time, your investment dollars buy fewer shares of stock when prices are high, but more when the price is lower.As the market recovers from a down cycle, don't be overcome with elation. Even if an upswing lasts a while, investing in the stock market is never a sure thing. Be realistic. Have a plan, stick with it.Don't ignore your investments either. Check up on them at least annually--more frequently if the market is particularly volatile or if there have been changes in your life. You may need to sell or buy some securities to bring your holdings back in line with the investment mix you've created.You can find more information at the AICPA's web site, www.360financialliteracy.org.
Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.
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