Markets Gone Wild!

By Diana Palmieri

Looking over retirement and brokerage statements for the quarter ending September 30, 2011, was probably not the highlight of anyone’s day. The markets alone from August to September plummeted fiercely to levels we’ve not seen in such a short period of time.  Then up we go again with a huge swing back up into the month of October, which proved to be one of the best months as far as gains in the market. Sounds like bungee jumping?  You bet. The market has been on a brutal volatile tear and, in my opinion, it’s not likely to end any time soon. Since we cannot control politicians and world events, you have to keep your head about you--not easy, but it can be done. Educating yourself about where you are invested and what you want to accomplish with your money can help.

Know in which companies you are invested

For those of us invested in individual stocks and stock mutual funds, do you know anything about the actual companies? Are they involved in consumer staples (think Proctor & Gamble), utilities (think Verizon), or the technology (think Intel) sectors? In times like these, you have to stick with what you know and what you’re familiar with.  How many people are shopping at Target or Walmart? Are the people in these stores purchasing Coca Cola and macaroni and cheese (Kraft)? For those of us invested in mutual funds, take a look at the statistics and holdings provided by the fund companies that tell you the groups of stocks you are in. Do the work and understand more about your own money and what it’s invested in.

We are not all traders

Traders buy and sell stocks daily, wanting to make a profit for themselves or for the firm they work for. They will make a lot of money or lose a lot of money. These are some of the people you may see in the background on some financial shows yelling and freaking out (I feel their pain). Most of us are investing for a little bit of a longer haul and working to preserve our own wealth. So now we must combine knowing about the companies (stocks) we own and looking at how they will do long term. Will people consistently drink Coca Cola and eat mac and cheese? Probably. Will people continue to take pain medications and drive cars? Yes. Thinking about the longer term and how the products the company sells will persevere should be a big part of what you purchase. The Internet is a great resource to find out what stock companies actually do and past performance.  Past history does not guarantee future results, but you can get a good idea of how your asset might do in the future.

Think about core fixed income investments

For those of us who can’t deal with these market swings, consider purchasing a core fixed asset such as a CD or temporarily parking some assets in a money market fund. I won’t lie, and as most of you are aware, rates are quite paltry these days. But if you want to protect your principal and are willing to forego larger stock dividend payouts and possible capital appreciation, this may be something to consider. There are also individual bonds you can ask an adviser about. They pay a fixed rate over time, and then your principal is returned when the bond is redeemed. These come in many shapes, sizes, and risk classes but may be worth a look if you want to get off the stock market roller coaster for a bit. I would never want anyone who is invested in the market for the long term to get out entirely, but perhaps look to diversify your portfolio into some fixed assets. Refer to one of my earlier articles about diversification and how it may cushion some losses over the longer term.

The bottom line is to keep your head about you and get educated. Money is a very emotional thing, and we don’t like to lose it. However, there are many scenarios such as world events, governments on the verge of collapse, and an upcoming election that are very much out of our control but ultimately will always influence markets. Looking past short term events and looking at longer term prosperity should remain your goal.

The information contained in this article is not intended to constitute legal, accounting, tax, investment, consulting or other professional advice or services. For specific information that applies to your circumstances you should consult a qualified tax advisor or independent professional advisory.

Diversification of your overall investment portfolio does not assure a profit or protect against a loss in a declining markets.

An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation, or any other government agency.  Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

Because mutual fund values fluctuate, redeemed shares may be worth more or less than their original value.  Past performance will not guarantee future results.  An investment in mutual funds may result in the loss of principal.  Mutual funds involve risk and are offered by prospectus only, which you can get from your registered representative. Carefully consider investment objectives, risks, charges and expenses of the investment company before investing.  The prospectus will include this and other information; read it carefully before investing.  Investing involves risks and there is no guarantee that any one strategy protects against a loss in a declining market.  You should consult with your financial professional regarding you particular situation.

Prices of fixed income securities may fluctuate due to interest rate changes.  Investors may lose money if bonds are sold before maturity.

Diana Palmieri is dually registered with Vanderbilt Securities LLC and H Beck Inc., which are unaffiliated. Securities offered through Vanderbilt Securities LLC, member SIPC/FINRA/MSRB. 

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