Whenever there is a market correction, mutual funds always see large outflows of funds. It’s inevitable.
So what has been the impact from the latest plunge? Well, the redemptions have reached levels not seen since the dark days of late 2008. According to a report from Lipper, there were $9.4 billion in outflows from exchange-traded funds. Roughly a third came from equity funds.
At the same time, investors poured $47.5 billion into money market funds.
Unfortunately, it seems likely that the market volatility will continue. Yet again, we are seeing a steep fall in today’s markets because of concerns about the European sovereign debt crisis. Of course, the United States also will have a grueling debt fight within the next few months regarding the budget.
OK, so what to do? First of all, it always is a good idea to have money in the bank. Financial planners often recommend at least three months’ living expenses. Yet with the continuing weakness in the U.S. economy, it is probably better to have six months or more.
Once you have a safety net, it is easier to take risks with your money. So if you have a 401(k), the market volatility actually should be a good thing. After all, this money is meant for the long term.
Sure, it is not an easy thing to do. But to get some comfort, consider that Berkshire Hathaway’s (NYSE:BRK.A) Warren Buffett is buying shares right now. He always likes to get aggressive when there is fear and panic.
True, he realizes it’s impossible to time the bottom. But this does not matter, so long as you put your money to work over time.
Actually, it is a good idea to focus on the kinds of stocks that Buffett owns. These include world-class companies like Procter & Gamble (NYSE:PG), GE (NYSE:GE) and Coca-Cola (NYSE:KO). These operators produce huge amounts of cash flows, pay hefty diviends and have survived many tough environments.
Or, if you are not a stock investor, there are also mutual funds that take a Buffett-like approach to investing. Some include Yacktman (MUTF:YACKX) and Columbia Dividend Income (MUTF:LBSAX).
Tom Taulli is the author of various books, including “All About Commodities” and “All About Short Selling.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
