Yesterday, the Dow Jones Industrial Average dropped by 267 points, or 1.62%. The real leader in this downward plunge, however, was the Tech-heavy NASDAQ, which fell by 130 points, or 3.1%. Apparently, given the recent Equilibrium that we have seen lately, some investors decided to take profits. And as it sometimes happens, the snowball effect added to the sell-off.
There area some financial pundits who are trying to make a comparison to the dot-com bubble that burst in 2000. But, I really don’t believe that this is the same thing. Yes, there was insider selling; however, given the large number of Internet and Social Media companies that have been formed, it just makes sense that the people who formed the companies begin to diversify some of their wealth. Also, many of these companies, unlike the dot-coms, are actually making a profit and are serving a useful purpose.
Even after yesterday’s Market Close, the Dow Jones was only slightly below where it closed 2013–after the Dow had grown by 26 points during the year. The NASDAQ, by the way, rose by 40% last year, spurred-on by the high performing Internet and Biotech stock sub-sectors.
Many people invest for the long-term–perhaps a Child’s Education or Retirement. If so, the five-to-ten point moves in the markets should be taken in stride. Also, even a several point move in any one day should not be cause to either speed-up or slow-down your schedule for investing. Whether you bought a stock or mutual fund at $30 and $32 yesterday will be virtually meaningless when junior goes to college or you retire in 2025.
Rather than bailing-out, times of volatility should serve as a reminder to review your portfolio. Don’t make any brash moves, update your portfolio after giving some forethought, do your homework and be sure to confer with whoever you look to for advice.
Oftentimes, a sector rotation might make sense and, perhaps, extend that concept to included shifts between stocks and bonds. Also, be sure to keep your portfolio in balance. That can help keep you out of trouble.
For instance, let’s say that you have $100,000 in your portfolio and have decided to invest $10,000 in each of ten securities. To simplify matters, I will assume that you have sufficient bond investments established in other investments. If one security grew by 40-to-50%, it would be worth $14,000-to-15,000. You might consider selling a portion and investing it in other securities. That would reduce the dependence of your Child’s Education or your Retirement on any one security.