The last several months have seen a lot of economic turmoil. The debt crisis in the US, new governments in Greece and Italy, riots in Africa, unmanageable debt and austerity measures have made a roller coaster ride of our own stock markets. This is when many investors get nervous and start wondering if they should sell, sell, sell and put everything into gold.
Revisit Your Investment Plan
At some point, either on your own or with the assistance of your financial advisor, you made a financial plan (you do have a plan, don’t you?). Take a look at it and see whether it still fits your financial objectives. Has anything changed in your life? Do you need to start reducing the equities portion of your portfolio to reduce volatility if you have a need for cash in the near future?
Chances are, your original plan still suits your personal needs and goals. For most people the best course of action is no action.
When To Sell
Financial advisors are happy to give advice on what and when to buy, but they usually leave the decision about selling up to you.
There are really only three reasons to get rid of an investment:
1. You need the money.
2. Your investment objectives have changed.
3. You realize your purchase was a mistake. For example, if you can’t stand volatility, stocks simply may not fit your needs.
Can You Time The Market?
Lately I have seen the TSX, S&P, DJIA, gold and oil and gas go up one day only to drop the next day – sometimes only a couple, and other days they all seem to be in tandem. Can you time it so you buy on a downward dip? I think you would have to be an expert or awfully lucky to be able to get it right.
The best course is to check out the fundamentals of a particular stock you’re interested in, pick a price you’re comfortable with and then go ahead and buy. If you choose a dividend paying stock you’ll still come out ahead even if the price dips a bit after you’ve bought it. You can’t earn any dividends if you sit on the sidelines waiting for things to calm down.
Stay The Course
Above all, keep a clear head, don’t panic, don’t get emotional and don’t make bad decisions. Buy if you have the opportunity. Sell if you have one of the three reasons to sell.
The best returns are made when stocks are left alone to ride out the volatility.