Man it’s looking bleak out there. The Dow Jones Industrial Average just took its biggest weekly drop in more than a year, and the rush to pull out of bonds sent the 10-Year Treasury’s yield to just south of 2.8%. Meanwhile, an eventual Federal Reserve stimulus tapering appears imminent, but leaders across the Fed keep telegraphing different ETAs, which should keep anyone properly spooked until it actually happens.
If you’re having a hard time deciding where to put your money to work, you’re not alone.
But the best thing to do right now certainly isn’t panic selling … it’s planning. As we head toward Labor Day and more investors look to re-engage with the market, heed this list of dos and don’ts to keep your emotions in check and your portfolio unharmed.
Consider rebalancing: Whatever your stock-to-bond ratio might have been to start the year, it’s probably a little out of whack by now. If you suddenly find yourself too heavy for comfort on either side, consider your alternatives. If you’re looking to get back into stocks, protect yourself with a little diversity via exchange-traded funds.
If on the other hand you want to get heavier in bonds, you can take some of the risk out of your positions by swapping out of those bond funds, either corporate or government, and move to individual securities. Check with any broker or trading house about the availability of corporates, and go to the U.S. Treasury Direct website for individual trades.
Look for bargains: Seek out solid value stocks. The market drop has hit a lot of companies, but not all of them necessarily had it coming. Meanwhile, others have weathered the beating fairly well and still maintained attractive valuations.
Discussing the latter, I really like oil & gas play ConocoPhillips (COP), which currently trades at just less than 11 times earnings and yields a rich 4.15%. While it has underperformed the market by about 4 percentage points year-to-date, it actually has remained level during the S&P’s most recent tumult. COP has raised its dividend 13 years in a row — and at a roughly 15% annual clip in the past 10 years — and sits on $4 billion in cash. Looks like a bargain to me.
Panic: The worst thing you can do is crater your retirement portfolio out of fear. As Dividend Growth Investor always reminds me, more people have lost money and value in their retirement portfolio because they sold off in a panic instead of ignoring the noise and sticking with the plan. Let patience and compounding returns work for you. Should you notice some of your longer-term plays have suffered some short-term bleeding, and your investment horizon is anything more than a year, read up about income equity’s historical track record and take your finger off the trigger.
Live and die on the headlines: We’ve already seen headline panic in the past months as media outlets try to interpret every word out of Fed leaders’ mouths. Prepare for more of the same in September, when the Fed is scheduled to meet, and when Wall Street is expected to get a fuller bead on its QE plans. What is said could very well have a big impact on interest rates and the stock market, and you should have ideas in mind about how you might rebalance depending on what environment the Fed could be sending us into … but again, keep our previous “don’t” in mind, and don’t completely jerk the wheel.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.
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