The fact that this market roller coaster is being pushed by a credit crunch instead of surging inflation or some other economic disaster doesn’t change the need to take a deep breath and sit tight.
Corrections, pullbacks, or whatever you want to call them are a natural part of the market cycle.
Some market commentators are concerned about liquidity and rightly so, but the Fed has shown it is willing to do what is necessary to avoid that crisis, after all, that’s its job.
For almost 40 years, each bull market has been hit by a correction of at least 10 percent.
It has taken an average of less than three months for the market to make up those corrections, which is why most veterans plan to ride out the bumps.
When the market begins its return to normalcy, you don’t want to be on the sidelines. Missing days of the beginning stages of the recovery are expensive.
Since it is not always clear exactly when the recovery officially begins except as a matter of historical record, most investors play it safe and stick with good, solid companies – even adding to their holdings if it seems prudent.
The market has returned to its historic growth rate after periods of rapid expansion and sudden pullbacks.
For investors with a long window, this is usually not a problem. However, if you are closing in on retirement or facing some other financial need, these market swells can be devastating.
A well-balanced portfolio with a proper asset allocation for your financial needs and risk tolerance is still the best defense against the daily market swings.
