WOW …the last three weeks have been scary! Who would believe that in a matter of a few days Lehman would collapse, the government would have to bailout major institutions to the tune of 700 billion, the commodities market would collapse, and the stock market would lose 30% of its value. Things are not good!
For the conservative investor…you know the one that only invested in solid blue chips and touted a balanced portfolio…you will probably see the 30% loss on your statements, but give it a year or so and things will probably inch up and values should slowly rebound.
For the high risk investor and those heavily invested in the finance/banking sector …it appears that only the strong will survive and the others will continue to lose value and probably be bought cheap by larger institutions…as we have seen this week with a local regional bank.
Although some people are looking at the change in the market as a buying opportunity, the average Joe (or should I say Josephine) should be cautious in converting cash into stock at this time. Nervous investors often sit on the sidelines during down markets until they are convinced that the market is rebounding. But by the time they get up enough nerve to buy back in, they have most likely missed much of the rebounding market’s gains, which commonly occur in the early stages of recovery.
If we look to the 12 bear markets that have taken place since World War II, investors who either stayed in the market through the bottom, or were fortunate enough to enter at the bottom, saw the S&P 500 gain an average of 32.5% (not counting dividends) during the first year of recovery. Investors who missed even just the first week of recovery saw their gain that first year slide to 24.3%. Those who waited three months before getting back in gained on 14.8%
Timing the market is impossible, so you must be in for the long haul…it going to take time…a long time, so don’t expect to make a quick killing.
Now is the time to take advantage of money market, certificate of deposit, and treasury note/bill buying opportunities since there are some high interest promotions enabling small financial institutions to raise cash. Keep in tune with the FDIC insurance requirements and share your wealth with a variety of institutions so that you face no withdrawal issues.
KEEP YOUR COOL, DON’T PANIC, INVEST YOUR CASH CONSERVATIVELY!