Advice for Today’s Investor: Keep emotion out of your strategy

Advice for Today’s Investor: Keep emotion out of your strategy

December 2008

Are you getting whiplash following all the ups and downs in the stock market? It's hard not to get upset watching your investments spiral downward, climb slightly and fall again. But you need to put your emotions aside and continue to make investment decisions based on the long-term.

"In general, people should already have a long-term investment plan in place," says Doug Bambeck, an Investment Adviser Representative with Investment Partners LTD. "Although we are in a short-term period of uncertainty, the long-term outlook for investing is still very positive. We still have the best economy in the world."

It's important to not let emotion rule your decisions "There is a lot of panic and negative media reports, and you have to filter these messages," said Steve Stocker, Managing Member and Principal of Investment Partners LTD. "Now is a very good time to reassess or reaffirm your strategy and the level of risk you are comfortable with."

"In good times, people tend to be more comfortable with risk - without fully realizing what their ommitment to risk can mean," adds Bambeck. "If you risk tolerance has changed, now is the time to change your strategic plan."

If you believe you must take money out of the market, sell methodically. Consider systematically selling on the days that the market rebounds, sometimes referred to as selling into a rally.

On the other hand, now is a great time to invest for the long-term.

"You can incrementally add to current investments, and you can also reinvest dividends into shares," said Stocker. "The worst thing you can do is cease investing altogether in a down market - it goes against the principal of buying low and selling high."

Company dividend yields of four, five and even six percent are providing very competitive current returns as compared to other income investments, Stocker notes.

Predicting the Future

No one has a crystal ball to predict the future; however, the stock market has typically served as a leading indicator in terms of predicting the future direction of the economy. Often times as much as six months in advance of a recovery.

"We'll likely see a rebound occur in the market well before we see general economic conditions improve, although we can't say when that might be yet. This is why it is so important to not let emotion rule your investing decisions. Missing just the five to 10 best return days in a given year can dramatically undermine historical returns."

And having experienced the historical losses, you should be able to experience the historical returns, as well.