What to do and not to do when the stock market declines
September 5, 1998 - © Copyright 1998 Sheldon M. Bell
First the Don’ts
Don’t panic the world hasn’t come to an end. The stock market often has declined significantly , but has always continued upward over time.
Don’t sell all your stocks or mutual funds just because the market has declined.
Don’t jump into the market with all your available cash hoping that the stock market has bottomed.
Don’t short the stock market hoping it will continue to slide.
Now the Do's
Do evaluate specifically how each stock or mutual fund has performed as a result of the decline.
Do determine if your investment goals have changed.
Do selectively sell some of your losers along with some of your winners if you need some more cash in the near term.
Do continue to fund your investment portfolio on a fixed periodic basis for your retirement years, as you have in the past. By dollar cost averaging you will now be buying stocks and mutual funds at sale prices.
Do prepare an investment plan to liquidate some of your poorer performing stocks or mutual funds if their fundamentals have deteriorated, or they have under-performed their peers.
Do continue to rebalance your portfolio if your asset allocation weightings have been altered significantly due to the stock market decline.
Do continue to add appropriate investments assets to increase the diversity of your portfolio.
Do remain confident as most stock market declines are short lived in today’s economic environment of low inflation, low interest rates, and a robust economy.
Do continue to be diligent in monitoring the economic news for any signs of a change in state of the economy that may effect the stock market, such as the posture of the Federal Reserve with reference to interest rates.