Now is the time to start preparing for market recovery. Yes, there will be a recovery. Maybe sooner, maybe later- what matters is there will be an end to these economic blues and better to be prepared than not.
Anyone simply hanging on to their ravaged portfolio until “it comes back,” may want to reconsider their position. Its time to get involved with your investments and filing away those monthly statements without opening the envelop is not the involvement I’m talking about.
This isn’t to say that good stocks don’t go through bad periods. When the tide goes out on the stock market, many otherwise stable companies get dragged out in the undertow. The point is that sticking your head in the sand and simply waiting for the market to sort itself out is a form of “investment paralysis,” a dangerous condition that is the inability to make a decision, any decision, because of market uncertainty.
Here are a few simple steps to shake off the paralysis and get your portfolio moving again in the right direction.
1) Take a deep breath and put it all in perspective. Time for a reality check. For most investors, the recent past was a train wreck. A huge fiery, smashing, crunching, metal twisting wreck. Be confident though that the economic tracks will be cleared and the railroads will run again. They may not run over all the same ground, but run they will.
2) Stabilize The Portfolio. Before the recovery gets underway, there is the chance that further losses may take place and you should stop the bleeding. Weed out the worst of your portfolio. This will both lock in capital losses to offset future capital gains and create a cash position that helps stabilize returns. This cash can later be put in play when the recovery is evident.
3) Rebuild beginning with today’s value. In hindsight, maybe you could have done something different, but you didn’t. Rebuilding begins with what remains within your control.
4) Expand your time horizon. Unless you have an immediate need to access your funds or don’t plan to be around in future, set your sights on 5 years from now, not 5 days. This doesn’t mean that short term opportunities don’t exist, but the longer perspective helps to give an insight to the big picture, which should dominate your overall investment strategy.
5) Separate yourself from the herd. Warren Buffett has said, “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right”. Common sense should prevail. Sure the auto industry is in the dumps today. Does that mean we will all stop buying cars? If we don’t replace our aging chariots, most of us will be walking. Does this make sense? So get those unopened statements out of the draw and rip them open. It’ll only hurt for a little while.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.