Sunday, August 28, 2011

Don’t Get “Scared” Out of the Market

I know it has been tough lately, but try to remember the wise words of Warren Buffet, “The market always comes back!”

With the media sounding the alarm that there may be a double dip recession, the downgrading of U.S. credit rating by S&P, the dismal economic forecast for many European markets it looks like many investors are becoming gun shy, to say the least, or they are losing all faith in the stock market. You can see evidence of this daily by listening to the news and watching rollercoaster of results on Wall Street.

But, would you believe that during volatile times like these, it is actually a time of great opportunity? Let’s say you are investing a set amount of money every month. When the market goes down you can buy more shares with that money and when the market comes back up you buy less shares, however, now all of the shares, even the extra shares you bought at the lower price go up in value – that’s called Dollar Cost Averaging. By following this strategy your money can really compound even in a volatile market.

Let’s take a lesson from recent history. The stock market can plunge or soar without a moment’s notice (sort of like that earthquake we experienced on the East Coast last week), leaving no time to bolt. Likewise, the healing power of the market often arrives when you least expect it. This is one thing that you can be sure of – the market will go up and the market will go down, in unpredictable ways, but, like Buffet says, it always comes back. Just like in early 2009, after stocks had fallen more than 50 percent, many investors and fund managers were terrified, but stocks surprised people, soaring 100 percent in just a few months and healing a lot of the damage caused by the crash.

Now let’s insert some simple numbers into this scenario. A person who had about $10,000 in the stock market before the crash would have had less than $5,000 at the worst point in April 2009, but if he left it alone he would have had about $9,000 by now. Yet if he had yanked it at $5,000 and put it in a savings account, he would be lucky to have $5,100.

Obviously, everyone is different and there are many other variables to consider: your risk tolerance, your time horizon until retirement, your goals, your investment allocations, etc. I am not attempting to advise you on any of this, however, I am just stating a fact that if you pull out your money at a low point in the market, you are guaranteed to lose. By riding out the waves in the stock market and taking advantage of dollar cost averaging it is very possible, not only recoup any loss, but over time amass a nice return on your investment.

Basically, do not let the fact that there is a lot of negativity out there scare you out of the market. Take all of the factors relating to your financial situation into consideration and make an informed financial decision instead of an emotional one. And remember, the market always comes back!

Check it out! This article was featured in the Senior Market Advisor magazine.

I'm so excited to share this information with you. If you have enjoyed the information or feel that it would benefit someone else, please share it. If you have any comments, please post them below, otherwise, feel free to contact me.
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