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Tips for Investors as Volatility Rises
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UNIQUE VIEWS   +   UP VOTES Vote Up   -   DOWN VOTES Vote Down   +   COMMENTS Comments   =   HEAT INDEX What is Heat Index?

The markets sold off this week, led by sharp declines in the tech-heavy Nasdaq.  From my vantage point, the most pain has been in “momentum stocks”, many which were overvalued to begin with.  Nonetheless, most indexes dropped a couple of percent.

This type of market action will always bring back out the “crash crowd”, talking of impending doom.  As irresponsible as it seems, many analysts make a living consistently calling for crashes and various economy calamities.  They are not held accountable for two reasons: 1) the media likes controversial subjects which boost ratings (see CNN’s coverage of the missing plane for further example); and 2) its virtually impossible to predict short-term market moves, so we just move on. Flipping houses can also be a type of investment.

For typical investors, this can be confusing and scary.  I can’t claim to predict what will happen this week, month, or year in the markets.  Are we due for a correction? Probably. Are we headed for a crash? Unlikely.  What I recommend during times like this is to take a brief inventory of my investments to make sure I’m positioned how I should be.  So here’s a few tips you can use:

  • Take a few minutes to make sure your asset allocations are on target. Re-balance if necessary.
  • If you’re too concentrated in one stock (which is risky at any time), you might want to sell a portion.
  • Move some extra cash into your investment accounts to take advantage of any buying opportunities
  • Avoid financial media.  Read my previous post on “ignoring the noise” for further detail.
  • In times of confusion, only pay attention to those you trust.  A couple of great blogs to check out when markets start acting up is Josh Brown’s The Reformed Broker.  These guys can always see through Wall Street BS.
  • Resist the urge to sell your core positions if the market starts dropping further.  If you have a good plan in place, the best bet is to stay the course, as hard as it may be.
  • Don’t buy into the hype.  If a volatile market stresses you out, don’t follow it.  Go outside and enjoy the day.  Do something that makes you happy.
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