Question: A lot of people are asking whether they should be changing the amount they invest. Is this the time for people to be making big moves with their payroll deductions?
No. Don't try to be a market timer. Even the most brilliant investors will tell you that they can not see what the market is going to do tomorrow. The key is to stay focused on the long run.
That said there are a couple of key rules to consider in a down market like we're experiencing:
1. Always invest enough to maximize your employer's matching program. This is free money – don't turn it down.
2. Don't miss the rallies. If you get scared during the tough times (after market corrections), you miss the benefits when the market rallies back – this shift can often be very quick and dramatic, so stay invested even during tough times.
Question: So with the market down so much, you still think we should be adding? Investing during market weakness is good.
You find much better bargains when the market is down. If you invest for yourself, look for the high quality companies with great Balance Sheets that you know will survive the storm.
If you are new to the markets, this is a terrific time to enter. After climbing to well over 14000 last October, the Dow is now back to about 12500. This is the same level it was standing at about a year ago. So investing now gets you to the same entry price.
Question: Okay, but for those new investors or those that haven't been through a tough market correction like this, what are the traps to avoid? The key is to not go overboard and try to hit a home run. Many people look at companies that have experienced a 50% stock decline and they'll jump in and say, "It has to come back". But making sure you do the work to ensure the Company has the cash to survive a recession is critical.
Our motto is "Slow and Steady Wins the Race" – we're always looking for companies that have been around for decades and don't have the wild swings that some companies exhibit. Find a great company at a fair price, and be patient!!! Don't look for quick returns.
For people who use mutual funds, the exact same rules apply. Find managers that have been around for a long time and exhibit a disciplined, patient approach to investing.