Will you sleep okay tonight or be miserable about what investments you’re in and how they dropped along with the market?
Does this remind you of earlier this decade when the likes of Enron and Level Three were near or at triple digits and ultimately ended up, well you heard about Enron and Level Three (LVLT) closed at $5.82 a share today. I guess it’s time to jump into LVLT. Just kidding.
Well if you’re a smart saver and investor, you don’t care what happened today. That’s right. Today is one day in many that you’ll experience a big down turn in the market.
You don’t need to track the markets on a day-to-day basis. That will make you sick. Of course, it’s hard to ignore when it’s plastered everyone in the media. But I’d rather view it as a time to do my normal, every day routine or don’t even bother watching market news.
However, if you’re an investor, you might be thinking about getting in something that’s now cheap enough to get into. If you play the Options market and you were “guessing” the markets and/or your favorite stocks were heading south, you could have bought Puts to make some money. Yes, you can make money on stocks when they go down. But that’s for another Funny Money Friday post about Options and this site promotes owning mutual funds for us smart savers and investors.
You want to focus on the long-term. The 10, 20, 30 years out that we’re investing for our retirement and more. You have to ride the roller coaster called the markets.
The Standard & Poor’s 500 or more affectionately known as the S&P 500, which is the world-renowned index that includes 500 leading companies in leading industries of the U.S. and is the best single gauge of the U.S. equities market, has returned over 10% in the last 20 years and there’s been some tough times in the last 20 years.
You have to remind yourself of the financial goals you’ve set. You have set some financial goals, right? Well, we’ll discuss it in another post.
How about your risk level. Your tolerance for the markets ups and downs. Assessing your risk level will determine what type of investments you’ll select. For example, we know stocks are more aggressive and riskier than bonds which also means stocks could include higher returns than bonds. Bonds are more safe investment choices and should be looked at closely as being part of your investment portfolio as life goes forward. That was a politically correct statement that really means, as you get older. 🙂
In other words, you’ll experience wilder swings in your stock mutual funds (mutual funds that include stocks in them) than in bonds. For some it will create wilder swings in your stomach as well. 🙁
Diversification & Asset Allocation
Diversification and Asset Allocation means investing in a variety of investments in different asset classes or categories. The “don’t put your eggs in one basket” thinking. That way, when one investment does poorly, the other might be doing just fine and another might be screeching higher and higher. Here at www.smartsavinginvesting.com, that means an allocation of mutual funds that include the following:
Large Growth – 35%
Large Value – 20%
Small Growth – 20%
Small Value – 15%
International – 10%
In another post we’ll discuss a good mix of index funds as well as throwing in some bond funds for safety sake and those older folks like me that I was talking about earlier, so they can protect their assets they’ve accumulated over the years.
Using dollar cost averaging to systematically invest a fixed amount of money at regular time intervals, say monthly, you won’t have to worry about timing the market. This will help even out the effects of market volatility.
So if you want a taste of doom and gloom read the following. But read it for education purposes and being able to stomach some of the bad news. It’s okay. Really.