The frantic activity in the financial markets has created its share of news headlines. While I typically prefer to avoid adding to the proliferation of opinions, I can’t help but notice the divergence of opinions ranging from “get out before it gets worse” to “do nothing as this too shall pass.” There may be truth to all of these ideas but it leaves the rest of us just asking ourselves, what am I supposed to do?
Fortunately, I think there is a simple answer that applies to all of us – FOLLOW THE PLAN. For some people, this may mean they do need to “get out” while for others “do nothing” may be the right course of action. What do I mean when I say follow the plan?
First, it’s imperative for everyone who’s investing to have a plan for why and how they are investing. In other words, clearly define your objective or purpose for putting your hard earned money at risk in the first place. Investing for growth versus generating income often translates into different amounts in stock.
Next is outlining the parameters for how you will invest your money as well as what criteria you will use to make changes. Perhaps 100 percent in stocks is okay for you but my guess is that the person next to you would prefer something different. Triggers for making a change might include buying or selling when the percentages in different investments reach certain levels to avoid too much risk. In most situations you’re not going to have everything in stocks so paying too close attention to what the stock market did today or yesterday is not a reliable indicator of how you’re doing personally.
The third (and perhaps most important part) of following the plan is to put it in writing. Ideally, you think through these items when emotions are calmest and you’re thinking is the clearest. By capturing these ideas in writing, you’ll be prepared when emotions take over. You’ll also put your mind at ease when things get worse in the future since you’ll have something more than your gut to rely on when people are telling you to do different things (especially when they have no idea about your personal situation).