3 Ways to Stay Sane
in a Crazy Market
by James W. Hamilton, III
Keeping your cool can be hard to do when the market goes on one of its periodic roller-coaster rides. It’s useful to have strategies in place that prepare you both financially and psychologically to handle market volatility. Here are three ways to help keep yourself from making hasty decisions that could have a long-term impact on your ability to achieve your financial goals.
1. Know What You Own and Why You Own It.
When the market goes off the tracks, knowing why you originally made a specific investment can help you evaluate whether your reasons still hold, regardless of what the overall market is doing. Understanding how a specific holding fits in your portfolio also can help you consider whether a lower price might actually represent a buying opportunity.
And if you don’t understand why a security is in your portfolio, find out. That knowledge can be particularly important when the market goes south, especially if you’re considering replacing your current holding with another investment.
2. Be Willing to Learn From Your Mistakes.
Anyone can look good during bull markets; smart investors are produced by the inevitable rough patches.
Even the best investors aren’t right all the time.
If an earlier choice now seems rash, sometimes the best strategy is to take a tax loss, learn from the experience, and apply the lesson to future decisions. Expert help can prepare you and your portfolio to both weather and take advantage of the market’s ups and downs.
3. Consider Playing Defense.
During volatile periods in the stock market, many investors reexamine their allocation to such defensive sectors as consumer staples or utilities (though like all stocks, those sectors involve their own risks, and are not necessarily immune from overall market movements). Dividends also can help cushion the impact of price swings. According to Standard and Poor’s, dividend income has represented roughly one-third of the monthly total return on the S&P 500 since 1926, ranging from a high of 53% during the 1940’s to a low of 14% in the 1990’s, when investors focused on growth.
James w. Hamilton, III is a financial advisor in the private wealth management division at Morgan Keegan. In this capacity he oversees the diverse needs of a select group of clients in a highly personalized manner, including wealth management, retirement planning and succession strategies. He is a graduate of The University of Georgia with a degree in Economics and Organic Agriculture.