Small Investor Advice In A Declining Market

February 10, 2014 sarah Uncategorized

The stock market is down big time over the last few weeks. In fact, in September 2008 alone, the stock market had one of the worst months ever, dropping over 10%! The bad news just hasn’t stopped. Merrill Lynch gets bought out by Bank of America, AIG the largest insurer in the country gets taken over by the government, and several banks like Washington Mutual have failed.

What’s a small investor to do?

“My advice for small investors is to not sell in a panic. I would evaluate your position and actually buy into the market as bargains come up” said Bob Johnson, a Savannah Financial Planner based in Georgia.

“This is definitely the worst financial condition for the markets in my 20 year career. But if a small investor is well diversified, there is absolutely nothing you should do.”

That’s because when a small investor, or anyone for that matter, is fearful, they tend to make bad decisions. Instead, look at you entire financial situation and your long term goals, and remind yourself that historically, things like this are a blip on the radar.

Nobody has a crystal ball, and things may not get better anytime soon, however, pulling money out now historically has proven to hurt the small investor the most. That’s according to a study done of the past 10 major market drops. In fact, one of the best things you can do now is to put money into the areas of your portfolio that has seen the biggest drop. It may seem counter intuitive, but it works. For example, emerging markets are way down right now, over 40% off their highs. This would be a perfect time to rebalance and add more funds to emerging markets, and studies show this to be true to.

If you do not yet have a plan, and don’t feel comfortable or knowledgeable developing your own, then perhaps the best advice is to go and meet with a certified financial planner. The best way to find one is to ask a friend who is financially successful for a recommendation.

And relax – history is on your side, no matter how difficult it is, just stick it out. Things will return to normal, they always do.

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