358 point drop in the stock
markets in a day! Investors are
understandably frustrated and worried. Why is this happening? We can begin to explain this in one
word: UNCERTAINTY! The stock markets HATE uncertainty. This is understandable because it’s human nature to get jolted when uncertainty hits our personal lives. The stock markets are no exception.
Sure taxes, inflation,
employment issues and the debt crisis are all factors that can and often do
lead to stock market drops but the one issue that always prevails is
uncertainly. The uncertainty this time
stems from the slow growth in China. Your
logical question is, “How can slower growth in China affect my hard earned 401k
plans and other investments?” The reason
is that all the economies of the world are interrelated. Thus, slow growth in China as well as other Asian
nations, could spell bad days ahead for the U.S.A. The more important issue is what to do now
with your portfolio.
First look at where you
have your monies allocated. Keep in mind
that in every market decline for a whole year, there have always been sectors
of the economy that showed positive growth.
Now might be a good time to look for these areas and perhaps diversify
more. In addition, I would use this as
an opportunity to invest more! Since the
Great Recession of ’08/’09, the markets have rebounded more than 100%. I’d also look for assets that provide
GUARANTEED returns.
Keep in mind a LONG TERM
time frame. If you are taking
withdrawals from your portfolio, you should not be too overly concentrated in
stocks anyway. Use this as a signal to
rebalance your portfolio. Within every
negative event there is an equivalent seed of opportunity.
This reminds me of a quote
I often tell clients. The notable Warren
Buffet once said, “Be fearful when others are greedy. Be greedy when others are fearful.” Please do not panic. Take some time to study, read and ask from
people who do this day in and day out.