With the market on a big seesaw, it’s time to answer the question of WHAT DO I DO NOW? The market appears to be “correcting,” or in the parlance of the street – “tanking.” Yes, the markets went up today, but we certainly are down for the year. So, what to do?
Advice: Don’t move until you have reviewed your entire portfolio. Are your dividends safe? Do you still like the CEOs? Have you heard any good, or bad, news about these companies?
If some don’t please you, consider selling some stocks. Especially if you are showing a loss, having bought a bit late in the rising market, the price may be lower than it was when you bought it. This can be really good idea if you have some capital gains you might want to take. You can balance the gains against the losses.
But don’t sell a company just because it is under water. You must decide that it no longer satisfies your criteria for holding it. If you can’t make up your mind, go back to step one – review.
Some financial advisers talk about balancing your portfolio or taking profits. You can do that if you want to, but IFO finds that this approach just makes money for the adviser.
This is all obvious advice, but sometimes you just need someone to hold your hand and encourage you to have confidence in your own ideas and choices.
Finally, if you didn’t review your entire financial picture at the beginning of January, do it now. Are you out of debt? Reducing debt?
How much cash do you want to have on hand? That depends on your reading of the future. If you think things are going to get bad, you might want to keep more cash on hand, either to get yourself out of difficulty or to buy that stock you thought was too expensive, but is now much cheaper.
It is probably a good idea to let some cash pile up, even though interest rates on checking and savings accounts are still shockingly low. Some people recommend having from 5% to 10% of your net worth in cash.
That seems like a fairly good rule of thumb, but IFO had almost 30% cash on hand during the worst of the recession in 2008 and 2009. She had about 14 companies under water, but had no idea what other stocks to buy if she sold the losers, so she just held on.
Then, when she found a company that looked good, she just bought a chunk of its stock. Those have been pretty good performers. Her recent purchases – not so much. Some red (Losers) is starting to show up on her Quicken investment accounts. So she’s going to have to follow this advice herself.
Plus, she’s going to read a few more financial publications that provide background on areas she feels weak on, plus she may finally get around to reading that great book by Benjamin Graham, “The Intelligent Investor,” first published in 1949. It “is a widely acclaimed book on value investing, an investment approach Graham began teaching at Columbia Business School in 1928…,” according to Wikipedia.
See The Graham Investor, a site we just found and intend to read, also.