I know many of you may have some jitters regarding the stock market. The government has decided to spend $850 billion to "fix" whatever is plaguing the markets. As I mentioned last week, there are a lot of things I don't like about it, but the government has decided to give it a whirl, and well, us regular folks are just going to have to sit back and watch what happens. In one year, the Dow has fallen nearly 5,000pts. Panic still continues to be prevalent in world market, and even rational investors tend to be nervous. But let me attempt to explain what you as an individual investor should be doing.
I can only speak to long-term investors at this point--those who have at least over 5 years or so until they can retire. You have to look at as if the stock market has a "cold." All these Fed Rate Cuts, nearly nationalizing companies, buying up bad debt, and propping up real estate prices are like cough suppressants--it will only prolong the process. in a common cold, the body "coughs" to try to expel that Nasty Green/Yellow Stuff from your body. A cough suppressant keeps you from coughing, and forces the body to expel it in other ways. The market has a cold and has to cough out all these bad things we've done over the past few years.
I STILL hear real estate commercials asking if you want to "Flip and Grow Rich." Some will never learn. We have a housing glut now--too many houses on the market--and prices have to fall to a reasonable point to adjust to market conditions. Yet, some still don't want to let the market "work this out of its system." Remember when computers used to go for $2000-3000 or more and this was seen as "reasonable"? Now you can find a computer with the processing speed, performance, and quality for a third of that price because the technology has become so abundant. Housing is no different. Don't get me wrong--I think housing is a great investment, but banks are getting very conservative now and not lending as freely as they used to. The era of NO MONEY DOWN!, CDOs, and Adjustable Rate Mortgages are (hopefully) on the way out.
Bottom line, if you cannot take these stick market dips, then you probably need to pull out, but you do so at your own peril. Me, I'm staying put. A good investment portfolio has you nearly 100% invsted in stock in your twenties, and probably shifting to more conservative investments (like bonds, annuities, and by 10% increments in your thirties and forties and then 15% increments in your 50s and 60s.) That way, if you are close to retirement, your investments will be less dependent on the whims of the market. My 401(k) investmetns at this point
are in 100% stocks right now. In my late thirties I'll probably go to 90-10 (stocks/bonds), then 80-20 in my forties, then 65-35 in 50s, and down to maybe 35-65 in my 60s and beyond. These short-term market jitters should not be bothering you if you have a long way to go.
Yes, I know that Wall Street has done some stupid and greedy things in the past few years and we all have to pay for it now. They are taking it on the chin right now, and should. Next week I'm thinking of covering Credit Default Swaps and how it adds even more stupidness to our current situation. I know such topics may be a bit dry, but once you know how we left our Store to be managed by irrational folks before, you'll be alert if it ever rises again.