What to do in a lousy market

Fri Nov 7, 2008, 9:25 AM | | Posted in Finances



Many people lost a lot of money in stock market. I did too; 25% in my retirement account and 15% in my stock investment, not in two years, not in one year but in less than 2 months. I am just waiting it out and that is the consensus of the majority of the financial advisers to try to wait it out if you can.

The baby boomers, and I am one of them, have not seen anything like this in our life times. We have just heard about what is frequently known as the great depression. I think, I am not sure though, it was Joe Biden who said “I don’t know what was so great about it.” The worst depression is more like it.

Anyway for whatever reason, Wall Street crashed. A lot of people assets, especially in real estate and stock market, are seeing diminishing their value. Everyone from those close to retirement to people just starting in the work force have gotten into stocks in a big way over the past couple of decades. So have I.

But you have to make the best of it if you can; if your assets have still some life left in them. I just tell myself to take it easy. Life has always been “one day at a time” for me. Never planned for the future. But one thing I am proud of that I watched my financing. I have never been a big spender. I realize it now and I am thankful for it.

The following are some of the things you can do to get through these bad times:

• Diversify
  If you still have some money left, just diversify. Diversification is so important, it can’t be emphasized enough. I read stories about people investing, for instance, in Lehman Brothers bonds their entire savings. I know at times, Lehman was the darling of Wall Street but to put everything in one basket is nothing to be proud of. We surely know it now. (Lehman, of course, filed for bankruptcy recently – so those bonds may return something, but not as much as people thought they would get.)

  If you are investing in individual stocks or bonds – anything that could be wiped out if a company fails – you should probably try to diversify as soon as possible. If you have your entire portfolio in less than 20 stocks, you almost certainly want to do some research of how to diversify. Your family future is far too important to trust to a small handful of company stocks or bonds.

• You lose money only when you sell
  In the age of online trading, it is so easy now to buy and sell. Individuals, research has shown, will buy high and sell low, exactly the opposite of what will make you maximum profit. As hard as it can be to see stocks at these levels, remember that these are losses on paper only, until you sell.

  It’s almost impossible to see either the bottom or top of the market. You only know it hits bottom when the stock market starts rebounding and hits top when it starts crumbling down.

• Always concentrate on what you can change
  Don’t try to change what you cannot. Make sure your bank account is fully insured by the Federal Deposit Insurance Corp. (FDIC). I hear that money market account is not insured by FDIC. Always check for diversification, and make adjustments to your basic allocation assets, the one you originally started out with.

• Be discrete in whom you trust
  There are all kinds of financial advisers. Educate yourself. Read about what you get into before you talk to your financial adviser.

  For instance, if you go into your bank seeking to invest in something safe, you may get someone who is not just a banker, but a broker as well. A lot of advisers out there will get a commission if you buy certain products.

  One place to go would be the National Association of Personal Financial Advisers, whose members are compensated solely by their clients, not through such things as commissions, rebates or finder’s fees. That way, you can be assured your financial adviser is working for you – and not for the company whose products you are buying.

• By the way if you are not satisfied with your mortgage lender
  Contact the Office of the Comptroller of the Currency (OCC) which is a bureau of the United States Department of the Treasury. The OCC charters, regulates, and supervises more than 1,600 national banks and about 50 federal branches of foreign banks in the U.S. (as of September 30, 2008) and their operating subsidiaries to ensure a safe, sound and competitive national banking system that supports the citizens, communities and economy of the United States. The OCC also supervises federally licensed branches and agencies of foreign banks.

• Long-term investments are the way to go
  Don’t check your 401k, for example, every chance you get. Some people check it every day even if they have twenty years left to retire. You are in this for the long haul. These are extremely bad times. Every day, the value assets decline. You would go crazy if you checked them every day.

  If you have invested the money for the long term, just let it ride the market. Markets go up and down. And if you find that you cannot stomach this level of losses (and mind you, only on paper unless you panic and sell), you should not have been in the stock market in the first place, period.

• Everyone has heard of Warren Buffet
  You know where he is at now; a billionaire, a multi-billionaire. He did not get here if he did not have the stomach for losses. I am sure his assets have a lot decreased in value in recent weeks.

Just stop and think but don’t panic.

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Information contained herein is general in nature, and is provided for informational and educational purposes only. Past performance is no guarantee of future results. Talk to your financial adviser.

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