Stock market jitters
Feeling panicked about the crappy state of the stock market? Me too. But the best strategy is to think long term, according to a Q&A in yesterday's LA Times. Writer Kathy M. Kristof answers these questions: My portfolio lost 20% of its value. Should I sell? Only if you need the money for expenses in the next 12 months. But if you "simply hate the discomfort of the financial turmoil, hang tight," the story says.
I want to take action. Where do I start? Put pencil to paper and write out the worst thing that could happen. Think through the next step and the outcome may not seem so scary. Also consider re-balancing your portfolio.
If brokerage firms like Bear Stearns fail are my stocks safe? If you invest in a firm that is SIPC-insured you will "get back the stocks, bonds, mutual fund shares and cash that were in their brokerage accounts before" the firm went belly up. Check if your brokerage is SIPC-insured at www.sipc.org.
I'm retired, will I outlive my savings? You can "safely withdraw about 4% of the value of your portfolio each year" and chances are you will not outlive your savings, the story says. If your investments have dropped below 4% your spending money could shrink significantly. Get a part time job or learn to live on less.
I had high risk tolerance a few years ago but now with the crummy economy, housing market and job situation, should I reconsider my risk level? It's a good idea to revisit your risk tolerance and how your portfolio is balanced once a year.
What is a diversified portfolio? In a diversified portfolio your money is invested in lots of different places, from stocks to bonds and cash. Within each type or "class" of investment you can put the money in different places. That way if one part drops you won't feel the hit as strongly because other investments balance it out.
Read the whole story here.
