Around the world, investors are wringing their hands, perhaps even losing sleep, over the recent downturn in the stock markets. It’s a natural reaction – no-one likes to lose money, even if it’s only on paper.
The credit crisis being blamed for the current slump shows no so signs of abating, with some pundits forecasting that we may not see a recovery until 2009. You may be frustrated and wondering what it all means. That’s OK, you’re not alone: even the world’s most preeminent financial thinkers are scratching their heads over how this crisis was allowed to happen, why an apparently short-term problem is now entering its second year and what the eventual fix will look like.
But you have to ask yourself the all-important question: Are you investing for the long term? Most investors are and experts have some simple advice: Don’t worry, for this too shall pass.
If you’ve been in the markets for a while, you probably remember the dot-com crash in the early 2000s or the very short-term stock collapse post-September 11, 2001. Those with longer memories can probably cite other similar examples, such as 1987’s infamous “Black Monday” when the Dow Jones Industrial Average plummeted 22%.
It’s really the same old story: markets go down, but eventually recover. Charts dating back to the 1950s show a steady rise in stock markets worldwide, with the occasional blip.
Market volatility is a reality and selling when things get a bit choppy will mean missing out on future returns. Studies have shown that investors who jump in and jump out of the markets, depending on how things are going, will inevitably lose out on the performance side.
If you use a financial advisor, pick up the phone and ask questions if you have concerns. That’s their job. “The handholding that we did between 2000 and 2003, it’s here again,” says Manulife Securities advisor Neil Bocking.
Time to buy?
Although it may seem counter-intuitive, many believe market “troughs” are in fact a good time to increase your stock or mutual fund holdings.
“There are good buying opportunities in a market like this because some people have to sell because they don’t have the cash, and they are facing redemptions,” says fund manager Anne Gudefin of Franklin Mutual Advisors.
Even if you’re not comfortable buying at this point (and that’s understandable), doing nothing is also a good option. Assuming you a diversified mix of stocks, bonds and cash, your portfolio will be fine, just be patient.