"Stock Market"s Worst Day of the Year" - Yikes, What Do I Do Now?
On June 1, 2011, the stock market suffered a big sell off. The Dow and the S&P500 bottomed out at lows not seen in a year.
The Dow lost 2.2%, the S&P lost 2.3% and the Nasdaq dropped 2.3%. This was bad news by any measure.
Yet, lost among the uproar, 127 stocks reported new highs on the same day. True, this is a very small number when you consider the thousands of stocks on the markets.
The point is just because key indicators are down doesn't mean every stock has dropped also.
The New York Stock Exchange saw gains for the day in 19% of its traded stocks, while the Nasdaq reported 16% of its issues gained for the day.
If this seems like calling a couple of drops of water in a glass half full, that's not my intent. This was a brutal day for almost every investor and citing a few exceptions will not change that.
The question is what does the average investor do when the market takes a nose-dive?
Unfortunately, the reaction is often to sell everything and head for the sidelines. This is almost always the wrong decision.
If you are holding quality stocks in a well-diversified portfolio, history says your best move is to sit tight. Market rebounds (and dips) are notoriously unpredictable. When the market does return, the best gains are often in the first few days.
If you don't know when the bounce will come, the only way to participate is to ride out the down market. When a true rebound does begin, you will miss the early big gains if you are sitting on cash. Miss one day and you may miss your best shot at regaining your losses.
The one exception to this rule is for people approaching retirement or some other major financial goal that will require cashing in stocks.
The rule here is begin moving a portion of your portfolio out of stocks and into fixed income securities (bonds or bank CDs, for example) five years before you actually need the money.
The stock market is volatile over the short-run, so plan you exit far enough in advance so you can take advantage of an up market.
If you wait until the last minute to cash in stocks, you may find yourself facing a stock market such as appeared June 1, 2011.
Your stocks may be like those few that advanced on that day, but don't bet your retirement on it.
The Dow lost 2.2%, the S&P lost 2.3% and the Nasdaq dropped 2.3%. This was bad news by any measure.
Yet, lost among the uproar, 127 stocks reported new highs on the same day. True, this is a very small number when you consider the thousands of stocks on the markets.
The point is just because key indicators are down doesn't mean every stock has dropped also.
The New York Stock Exchange saw gains for the day in 19% of its traded stocks, while the Nasdaq reported 16% of its issues gained for the day.
If this seems like calling a couple of drops of water in a glass half full, that's not my intent. This was a brutal day for almost every investor and citing a few exceptions will not change that.
The question is what does the average investor do when the market takes a nose-dive?
Unfortunately, the reaction is often to sell everything and head for the sidelines. This is almost always the wrong decision.
If you are holding quality stocks in a well-diversified portfolio, history says your best move is to sit tight. Market rebounds (and dips) are notoriously unpredictable. When the market does return, the best gains are often in the first few days.
If you don't know when the bounce will come, the only way to participate is to ride out the down market. When a true rebound does begin, you will miss the early big gains if you are sitting on cash. Miss one day and you may miss your best shot at regaining your losses.
The one exception to this rule is for people approaching retirement or some other major financial goal that will require cashing in stocks.
The rule here is begin moving a portion of your portfolio out of stocks and into fixed income securities (bonds or bank CDs, for example) five years before you actually need the money.
The stock market is volatile over the short-run, so plan you exit far enough in advance so you can take advantage of an up market.
If you wait until the last minute to cash in stocks, you may find yourself facing a stock market such as appeared June 1, 2011.
Your stocks may be like those few that advanced on that day, but don't bet your retirement on it.
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