McKay Wealth Management
When the stock market moves, it can move quickly.
Just last October the Dow Jones Industrial Average (DJIA) was setting a new high. Within weeks the market had fallen by 10%, and by January it was testing the "bear market" indicator of being down 20% from its high.
During all of 2007, the stock market, as measured by the DJIA, had 60 days in which prices moved by 1% or more, more than double the number of such days during 2005 or 2006. Just over half (31 of 60) of those 1% days were to the downside, but the other half was to the upside.
What should investors do when the financial markets are roiling?
The first rule of thumb is, don't panic. Don't be stampeded into making decisions on an emotional basis. The economy goes through cycles, and portfolios need to be structured to weather the downturns as well as to profit during the growth phases. Jumping into and out of the market, trying to call the tops and the bottoms, is a chancy proposition.
The better antidote for portfolio volatility may be diversification. For example, while past performance is not a guarantee of future results, long-term financial market studies have shown that adding bonds to a portfolio can reduce the variability of portfolio return.
As stock prices in general have fallen, many specific stock valuations, as measured by the ratio of stock prices to earnings, have become more attractive.
There may be bargains to be had.
At the same time, there are some sectors of the national economy in real distress, and recessions have a way of putting some firms out of business.
How can you navigate through such treacherous waters? We recommend seeking the advice of investment professionals, who are well acquainted with the risks and rewards of today's markets.
Jeff McKay may be contacted at 206-973-4488 or by e-mail at jeff.mckay@ingfp.com. Proud Sponsor of the McKay Wealth Management Barney Clark Golf Classic supporting the Highline Medical Center Foundation.
Securities and Investment Advisory Services offered through: ING Financial Partners, Inc.Member SIPC. McKay Wealth Management and Pacific Rim Financial Group, Inc. are not subsidiaries of nor controlled by ING Financial Partners. 6000 Southcenter Blvd, Suite 70, Tukwila, WA.
