Yesterday scared a lot of people. And when the July brokerage statements arrive, many people will not want to open them. It’s not been a good month for stocks.
When there’s a sudden drop in the market, one that makes people take notice, we always wonder what’s going to happen next. Is it the beginning of a steep decline, perhaps a Bear Market? Or is an opportunity to buy stocks on sale? A Blue Light Special?
The answer is: nobody knows. Anyone who pretends to know is lying.
If you have a properly constructed portfolio, what happens next won’t bother you.
By a properly constructed portfolio we mean a portfolio that’s designed to be robust, that’s properly diversified and one that is designed for your risk tolerance.
When the stock market is going up, the value of that part of your portfolio devoted to stocks increases in value. And while you may think that’s a good thing, what it’s doing is increasing the portion of your investments to stocks which are the riskiest part of your portfolio. Over time, during a Bull Market, your portfolio is becoming riskier and riskier. Unless you take active measures to bring your investments back to your original asset allocation – a fancy way of saying the portion of your portfolio that’s devoted to stocks and bonds – when the market takes a dive, your portfolio will decline more than you want.
If yesterday’s drop felt more like a drop-kick, you own too much stock. It’s time to to re-evaluate your risk tolerance. Talk to your financial advisor.
So, to answer our original question: What do you do when the market drops 300 points? If you had a portfolio that’s designed with you and your future in mind, the answer is nothing. On the other hand, if it caused you to panic, call us and let’s talk.