Transcript of "Eleven Ways to Stay Sane in this Market"
Capstone FinancialDavid MelilliPresident250 West Main StreetMoorestown, NJ email@example.com Eleven Ways to Help Yourself Stay Sane in a Crazy Market Keeping your cool can be hard to do when the market 3. Remember that everythings goes on one of its periodic roller-coaster rides. Its useful to have strategies in place that prepare you relative both financially and psychologically to handle market Most of the variance in the returns of different volatility. Here are 11 ways to help keep yourself from portfolios can generally be attributed to their asset making hasty decisions that could have a long-term allocations. If youve got a well-diversified portfolio impact on your ability to achieve your financial goals. that includes multiple asset classes, it could be useful to compare its overall performance to relevant 1. Have a game plan benchmarks. If you find that your investments are Having predetermined guidelines that recognize the performing in line with those benchmarks, that potential for turbulent times can help prevent emotion realization might help you feel better about yourWords to ponder from dictating your decisions. For example, you might overall strategy."Investors should remember take a core-and-satellite approach, combining the use Even a diversified portfolio is no guarantee that youthat excitement and of buy-and-hold principles for the bulk of your portfolioexpenses are their wont suffer losses, of course. But diversification with tactical investing based on a shorter-term market means that just because the S&P 500 might haveenemies. And if they insist outlook. You also can use diversification to try to dropped 10% or 20% doesnt necessarily mean youron trying to time theirparticipation in equities, offset the risks of certain holdings with those of overall portfolio is down by the same amount.they should try to be fearful others. Diversification may not ensure a profit orwhen others are greedy and guarantee against a loss, but it can help you 4. Tell yourself that this too shallgreedy when others are understand and balance your risk in advance. And if passfearful." youre an active investor, a trading discipline can help you stick to a long-term strategy. For example, you The financial markets are historically cyclical. Even if--Warren Buffett might determine in advance that you will take profits you wish you had sold at what turned out to be a"Most of the time common market peak, or regret having sat out a buyingstocks are subject to when a security or index rises by a certain percentage, and buy when it has fallen by a set opportunity, you may well get another chance atirrational and excessiveprice fluctuations in both percentage. some point. Even if youre considering changes, adirections as the volatile market can be an inopportune time to turnconsequence of the 2. Know what you own and why you your portfolio inside out. A well-thought-out assetingrained tendency of most own it allocation is still the basis of good investmentpeople to speculate or planning.gamble ... to give way to When the market goes off the tracks, knowing whyhope, fear and greed." you originally made a specific investment can help 5. Be willing to learn from your--Benjamin Graham you evaluate whether your reasons still hold, mistakes regardless of what the overall market is doing."In this business if youre Anyone can look good during bull markets; smartgood, youre right six times Understanding how a specific holding fits in your portfolio also can help you consider whether a lower investors are produced by the inevitable roughout of ten. Youre never price might actually represent a buying opportunity. patches. Even the best arent right all the time. If angoing to be right nine timesout of ten." earlier choice now seems rash, sometimes the best And if you dont understand why a security is in your strategy is to take a tax loss, learn from the--Peter Lynch portfolio, find out. That knowledge can be particularly experience, and apply the lesson to future decisions. important when the market goes south, especially if Expert help can prepare you and your portfolio to both youre considering replacing your current holding with weather and take advantage of the markets ups and another investment. downs. November 14, 2011 Page 1 of 2, see disclaimer on final page
6. Consider playing defense 9. Remember your road map During volatile periods in the stock market, many Solid asset allocation is the basis of sound investing. investors reexamine their allocation to such defensive One of the reasons a diversified portfolio is so sectors as consumer staples or utilities (though like all important is that strong performance of some stocks, those sectors involve their own risks, and are investments may help offset poor performance by not necessarily immune from overall market others. Even with an appropriate asset allocation, movements). Dividends also can help cushion the some parts of a portfolio may struggle at any given impact of price swings. According to Standard and time. Timing the market can be challenging under the Poors, dividend income has represented roughly best of circumstances; wildly volatile markets can one-third of the monthly total return on the S&P 500 magnify the impact of making a wrong decision just since 1926, ranging from a high of 53% during the as the market is about to move in an unexpected 1940s to a low of 14% in the 1990s, when investors direction, either up or down. Make sure your asset focused on growth. allocation is appropriate before making drastic changes. 7. Stay on course by continuing to save 10. Look in the rear-view mirror Even if the value of your holdings fluctuates, regularly If youre investing long-term, sometimes it helps to adding to an account designed for a long-term goal take a look back and see how far youve come. If your may cushion the emotional impact of market swings. portfolio is down this year, it can be easy to forget any If losses are offset even in part by new savings, your progress you may already have made over the years. bottom-line number might not be quite so Though past performance is no guarantee of future discouraging. returns, of course, the stock markets long-term direction has historically been up. With stocks, its If youre using dollar-cost averaging--investing a important to remember that having an investing specific amount regularly regardless of fluctuating strategy is only half the battle; the other half is being price levels--you may be getting a bargain by buying able to stick to it. Even if youre able to avoid losses when prices are down. However, dollar-cost by being out of the market, will you know when to get averaging cant guarantee a profit or protect against a back in? If patience has helped you build a nest egg, loss. Also, consider your ability to continue purchases it just might be useful now, too. through market slumps; systematic investing doesnt work if you stop when prices are down. 11. Take it easy 8. Use cash to help manage your If you feel you need to make changes in your portfolio, there are ways to do so short of a total mindset makeover. You could test the waters by redirecting a Cash can be the financial equivalent of taking deep small percentage of one asset class into another. You breaths to relax. It can enhance your ability to make could put any new money into investments you feel thoughtful decisions instead of impulsive ones. If are well-positioned for the future but leave the rest as youve established an appropriate asset allocation, is. You could set a stop-loss order to prevent an you should have resources on hand to prevent having investment from falling below a certain level, or have to sell stocks to meet ordinary expenses or, if youve an informal threshold below which you will not allow used leverage, a margin call. Having a cash cushion an investment to fall before selling. Even if you need coupled with a disciplined investing strategy can or want to adjust your portfolio during a period of change your perspective on market volatility. Knowing turmoil, those changes can--and probably that youre positioned to take advantage of a should--happen in gradual steps. Taking gradual downturn by picking up bargains may increase your steps is one way to spread your risk over time as well ability to be patient. as over a variety of asset classes.IMPORTANT DISCLOSURESBroadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is notspecific to any individuals personal circumstances.To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purposeof avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or herindividual circumstances.These materials are provided for general information and educational purposes based upon publicly available information from sources believedto be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any timeand without notice. Page 2 of 2 Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2011