Keeping Your Head, And Your Shirt, In Uncertain Times
After a quarter such as the past one, when equity markets worldwide climbed to multiyear highs, dropped like a stone and then bounced, what's a small investor to do?</br></br>Retail investors have a history of overreacting to market swings in harmful ways. They poured into technology stocks right before the bubble burst in 2000, and many of them were so shell-shocked by the ensuing decline that they piled out of equities altogether and missed most of the bull market of the past three years.</br></br>"What happens is a perverse form of market timing, rushing in at high prices and panicking out at low prices," said Richard Hoey, chief economist for Dreyfus Corp. "It's a mistake for you to assume you know what is going to happen in the market in the future," Hoey said.</br></br>Follow the long-term plan. Most financial advisers suggest that investors follow an asset-allocation strategy with fixed percentages of their money in bonds, cash and various types of stocks, such as large U.S. companies, small companies and international companies. Over the past three years, small-company stocks and stocks in the developing world have shot up much faster than those of large American companies, so many investors may find their portfolios out of balance. Now might be a good time to capture some of the gains and reinvest the profits in areas that haven't grown as quickly.</br></br>"If you were biting your nails during the last downturn, it might be a sign you need to diversify. If you've got a lot of money in emerging markets or small-cap stocks, quit it or at least don't put any more in," said Russ Kinnel, director of mutual fund research at Morningstar Inc.