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Investing in Turbulent Times

Sep 30, 2008 05:00PM ● By Super Admin

Do you have your seat belts on? What a ride so far! You’ve enjoyed the exhilaration of the ride up and screamed through the gut wrenching sensation of being dropped. Now you’re just nauseated and want it all to come to an end so you can plant your feet firmly on the ground again. Sound familiar? For those long-term investors, this may be déjà vu – although the media would beg to differ, saying it's “different” this time.

While the media provides a valuable service, we are in an age of over information. Too much information makes it difficult to decipher the good from the bad and the bad from the ugly. Besides, the information provided is usually based on a shorter-term perspective.

Speaking of the media, remember: FEAR SELLS! Headlines are exactly that. There’s usually no room for optimism on the front page. So what is one to do? Warren Buffet puts it very aptly: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

Or to put it as John D. Rockefeller once said, “The way to make money is to buy when blood is running in the streets.” Well, the streets are turning red…

And, an interesting point to note is that one contrarian indicator of the market is consumer sentiment. When it is at its lowest, that’s when opportunities abound. Unfortunately by that time, the masses are driven by panic and despair.

While this is all great for investors sitting on the sidelines, what about the ones who are already invested? Here are some investment pointers to keep in check for those of you who are holding on tight.

1. Stay diversified. That is, assuming you already have a well-diversified portfolio between various asset classes. Staying the course in both good and bad times is usually recommended. Based on a study by research firm Dalbar, in the 20 years through 2006, the S&P 500 returned an average annualized return of 11.8 percent, whereas an average individual investor earned only 4.3 percent. The disparity is mostly from getting in and out of the market and missing out on the up-swings.

2. Don’t stop that dollar cost averaging. If you’re not doing it, start today. Remember, you’re buying shares on “sale” and hence, buying more shares with a constant dollar amount.

3. Stay with the investment objective. If investing for long term, think long term. In other words, focus on the forest, not on the trees. Nothing goes up forever. Neither does it go down forever. And no, the world is not coming to an end – although it may seem so nowadays. Stay invested. When the markets turn around, you want to be positioned to benefit from the up swing.

4. Get a portfolio check-up if you haven’t had one in a while. It may not be a bad idea to review investments every four to six months to ensure they are aligned to your goals.

These few steps, as simple as they may sound, are easier said than done, but practice does make perfect! And finally, make sure your seat belts are on, and hold on for just a little longer.

Rashida Lilani, CFP®, CMFC is with Lilani Wealth Management, located in Roseville. For more information or to contact Rashida, please call 916-782-7752 or visit Lilani Wealth Management is a Registered Investment Advisor. Securities offered through Foothill Securities Inc. Member FINRA/SIPC.