Well, I’m reading some panic-inducing headlines lately about the Dow going down 20% and how it is worst June since the Great Depression. Recently my mom asked if I were selling my investments lately, and I said no way. Here are some of the reasons why I am not panicking and keeping my portfolio intact.
1. I don’t need the money - The hubby and I have a cash reserve that could last more than a year of our expenses. So there is no need to touch our long term investments.
2. No reason to sell at a low point – Most mutual fund investors do not get the long term gains as advertised by the funds because of panic selling at low points. Since most of my portfolio is in funds, I am keeping them still to get the long term benefits.
3. I have gains – Yes, my portfolio has gone down a few percentage points, but overall I still have gains because I have been investing for more than three years. So if I do sell now, I still have capital gains taxes to pay, and that doesn’t seem to be worthwhile.
4. Volatility is normal - This is an election year, so volatility is to be expected since there are a lot of uncertainties. Additionally, the turmoil in the credit/finance industry has not totally settled yet. I would be more worried if there was no volatility and the markets are shooting straight up because that might indicate another bubble.
At this point, the best thing for long term investors to do is to not look at the market. A funny story I read at the Vanguard Diehards forums said that a photographer asked one of the Bogleheads “How’s the market doing?”, and someone answered, “I don’t know and I don’t care!”. I like that attitude. I think my portfolio is fairly well diversified and I am comfortable with its long term growth, so I am just leaving it alone. If I look at it too much, I might be tempted to do something stupid, and that could be disastrous.
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2 comments ↓
[...] The Baglady – Keep Your Long Term [...]
[...] If you adjust for inflation, $63 billion in 1991 is equivalent to around $100 billion today. The five bank failures of this year adds up to more than $34 billion in assets. So I think the worst is yet to come and all of us will experience some pain. It’s going to get worse before it gets better, but there is very little we can do to stop the insolvent banks from failing at this point. The good news is that the economy recovered the last time around and if you bought an index fund in 1991 and just sat on it you would be quite a bit ahead today. So once again I reiterate, if you are an investor then you shouldn’t panic and just keep your long term investments. [...]
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