The Dividend Investing Resource Center

Letting Dividends Do Their Work

Thoughts on Market Turbulence...

Kathy Courtney

The market volatility of the past few months is probably going to continue so you need to get used to it. If it is more than you can handle, perhaps you need to get out of the market altogether. If you feel somewhat brave, go into quality blue chip stocks or conservative bond funds, or even CD's, and stay there, leaving all the volatile tech and biotech behind.

For the rest of us, who want to stay invested, there are some things we can do during these turbulent times. Part of our portfolio should be in conservative stocks or funds, but we don't want to completely miss the great opportunity that is present in the new tech and biotech fields today. The conservative portion needs to include enough money so that we will feel secure. Diversification is key, and it can include small cap, mid cap, large cap stocks, and/or funds. If some of your investments go down, there will be stocks or bonds in other sectors to bring you through the volatility.

Those who suffer the most during turbulence are either traders who want to make a quick profit, or those who need to take their money out during that time (for ex. down payment on a house). History has shown that anyone who leaves his money in good quality stocks will recover after a downturn in the market, and usually is ahead down the line for long term. This is one reason that you NEVER invest money that is for monthly bills, house payments or car payments. Only invest what you can afford to lose.

It is very difficult, and almost impossible, to time the market. Therefore, if you want to purchase highly priced stocks with massive P/E ratios, you can wait for the dips. Also buy using limit orders. The idea is to buy low, sell high.

We should always hold stocks on an intellectual basis, not on emotion. We might become hysterical and panic, selling quickly when we hear gloom and doom about a particular stock by a friend or an analyst, especially when they say that the market is about to crash. When this happens, it is a good idea to write down your investment strategy, what investments you own (why did you buy them in the first place), and what you want to buy in the future (such as fiber optics, household goods, telecom, energy). An important question to ask is "Why am I investing and what kind of an investor am I"? Don't be swayed by negative analysts, who most times don't know what is going to happen any more than we do. None of us can predict the future, or we would all be billionaires!

When you buy a stock, there is no guarantee that it will succeed. This is the basic risk in investing - you must realize you might lose all your money. Therefore, as I mentioned before, it is essential that you only invest money you can afford to lose, and never invest what you need for living expenses or for emergencies. Invest with a long time horizon in mind, at least 5 years, 10 years is even better.

If you do your homework ahead of time, and are not tempted by "hot tips" or "sure things", you will have a better chance of success. Then you won't be tempted to invest in unproven companies during bull markets or bailing out of stocks during market declines. Look for the very best companies (such as stocks in the S&P 500, Nasdaq 100).

If you do trade any of your stocks, don't buy or sell often, and if you do, use a discount broker. This will hold down expenses. If you are going to trade, do it in your retirement accounts, and the taxes will not be a problem. However, never use these funds for speculation. If you do, you might be left with nothing during those crucial retirement years when extra income could help.

The best way to allow your portfolio to grow is to spend less and save more. It sounds so simple, and it is if you discipline yourself. When my first husband died suddenly at an early age, I started saving 20% out of my paycheck and invested it in my company's mutual funds. It is amazing how quickly I became used to living within that budget, and at the same time I was building up a great portfolio.

Age also plays a role in how you invest. The older you are, the less risk you can handle, as you don't have time to earn it again. If you are over 60, for example, your approach probably needs to be more conservative.

We are all different, and this also follows through in our investment styles. My style is conservative. I am a long term buy and hold investor, with most of my portfolio in large cap blue chips. I do own a few small cap biotech and tech stocks, but none are penny stocks. Most of my stocks are in DRIPs, so I reinvest the dividends and send in regular optional cash payments. My portfolio has grown very well over the past few years and it has happened without much selling or trading. I spend a lot of time investigating the potential stock and I have had very few failures. We all have a few, that is for sure, but the idea is to have more success than failure, and don't get too greedy, that can be your downfall.

These are just some thoughts that I had concerning investing during these turbulent times that I wanted to share with you. What are your ideas for investing during these volatile days? I would love to hear others on this subject. Join me on The Woman Investor board and we can discuss your ideas.

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