(Prosperity - Laura E. Kirkpatrick and Mary Collins)
Recession. The R Word – You might think that the best thing about “recession” is that it gets you at least 11 points in Scrabble ™. Here at Prosperity, the R word, and the last couple of weeks, have been met with some panic and lots of recitation of Newton’s Second Law of Motion (To every action there is an equal and opposite reaction).What goes down, into bear market territory, must at some point recover. This isn’t just a sign of our enduring optimism, but a historical fact. Check out the returns on the Dow Jones Industrial Average, for the last century or so, listed below.
There are even some people who look at this as a time to pick up the best deals on the market. For those of us who can’t find that pair of rose-colored glasses anymore, it’s time to stay focused, maintain perspective and get our money’s worth out our financial advisors – ask questions and work on rebalancing portfolios. It’s time to take a deep breath and remember that it’s about the long term.
Financial markets are closely tied to the economy, which in turn is closely tied to the country’s social and political climate. So with higher interest rates, a sub-prime crisis and increasing unemployment, it’s no surprise that stock prices would fall, shaking our confidence in the markets. But here are a couple of tips to help you through this rough time
. 1) Remember That Newton Guy Again. Volatility in the market is cyclical and there’s going to be another upswing, someday. Long-term investors usually see rewards despite market ups and downs. Thomson Financial found that $1,000 invested in the S and P 500 on 12/31/1950 would have been worth around $512,000 by the end of 2007. So despite oil crises, wars and tech busts, boomers, hippies, bobos, xers and even millienials, during that 57-year span, an investment would have grown by a five digit percentage.
2) Stay Focused. Since 1950, the stock market has only been down over 20% two times at the end of one year. You’re in this for the long haul, not the short term. Keep your goals in mind. Sometimes, the best advice is; “Don’t just stand there, do nothing!” In the middle of chaos, its best to stand still until the wind calms, and the dust settles. Panic induced moves are usually wrong.
3) Don’t Quit. Staying invested means you’ll be in the game when the market does turn around, an event that can happen suddenly. DWS Scutter, a division of Deutsche Bank, found that stocks bought and sold after just one day exposed the investor to a loss 46 percent of the time. A stock held for five years, on average has had positive returns 93% of the time .So stay calm, informed and invested. And take a few deep breaths—this will all be over before you can say “$6 a gallon.”
4) Save Safely. Now (ahem, NOW) is the time to make sure all of your bank deposits are insured. Visit the FDIC to check out the rules on insured deposits, and make any changes necessary to ensure you are safe. (http://www.fdic.gov/deposit/deposits/insured/index.html )
5) We were never girls scouts, but that doesn't stop us from being prepared for a variety of situations. So let's take a walk on the worst case scenario side. As in - Oh! No! MY BANK FAILED!!! Remember, very few banks have failed, so this is VERY UNLIKELY to happen to you. But if it does, don’t panic. Insured deposits should be covered. Go to http://www.fdic.gov, On the home page, go to the Consumer Resources box, click on Is my Account Fully Insured (page 2 of 4) and get the full skinny.
Suze Orman breaks down "Capitol Preservation" on Monday, September 29.