subject: Why I Refuse To Panic Because Of The Recession [print this page] The stock market can get uglyThe stock market can get ugly. I think we all know that. And yet, when youre in the middle of a brutal, never-ending recession, its sometimes difficult to remember that there will be light at the end of the tunnel, that there have been recessions before and that eventually, the market will bounce back.
If history has taught us anything, it is that every bear market as prolonged as it can be is eventually followed by a bull market. The market moves in cycles. Recessions are part of how the market behaves. Why SHOULD I panic because of the recession? Panicking would make no sense and could get costly if I panic and sell when the market is down.
People are talking about a double-dip recession, and it might happen or it might not. It doesnt matter. I plan to stay put, breathe deep and hold on to my mutual funds and ETFs. Yes, even when it gets ugly.
My basic belief as an investor it that over several decades, the market rewards nicely those who stick with it for the long run. I am a buy-and-hold investor, except that I rebalance my portfolio annually and while I do that I also get rid of the occasional loser I happen to buy. For example, at the beginning of this year I weeded out a couple of mutual funds who under-performed both in 2008 when the market fell and in 2009 when it bounced back!
I believe in buying and holding and in never trying to time the market this can get quite costly. I believe that if you put money in high quality, no load, low expense funds and just let it grow for a few decades, it will reward you nicely, more than any other type of investment.
Of course, asset allocation is important. You should only put in the market as much as you are comfortable putting there, and if the traditional 100 minus your age rule doesnt work for you, then ignore it. This rule never worked for me, by the way I never put more than 40% of my portfolio in stocks, even when I was very young. So do what works for you.
Having a small percentage of your overall portfolio in many different types of investments provides good protection from a ruthless bear market. If 100% of your portfolio is in the US stock market and the market loses 70%, youre in a very difficult place (but you still need to stay put and wait it out, in my opinion). But if, for example, you have 35% in US stocks, 20% in international stocks, 30% in bonds, 5% in gold, and 10% in FDIC insured cash and cash equivalents, you are in a much better place.
The only exception to my ride the market waves and stay calm attitude is that if youre planning to retire in ten years or less, you should consider getting out of the stock market, or mostly getting out if the market is doing well. Dont allow yourself to get to a place where youre ready to retire but most, or a big chunk of your portfolio, is in the stock market. As countless retirement-age Americans are learning right now, this is simply too risky.
*Vered DeLeeuw is a freelance writer and blogger. She writes about a wide range of topics, including personal finance, real estate, marketing and self-improvement. Vered lives with her husband and two children in the San Francisco Bay Area of California. For more information please Visit : www.jemstep.com
by: Jem Step
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