Everywhere you look these days people seem to be wondering about a stock market correction or — even worse — an all-out crash.
With the market trading near all-time highs, it’s not surprising that there are a lot of scared people out there. This is where our emotions — fear in this case — can get the best of us. So, let’s keep a few important points in mind.
Yes, I know the market has nearly tripled since the March 2009 bottom, and I know that it has been a long time since we’ve had a real correction. So, I can understand where the fear comes from, but predicting a broad market pullback is nearly impossible — trying to time the exact peaks and dips may not be your best bet here.
The “doom and gloom” crowd has been calling for this a long time. They haven’t been right yet, and the longer they’re wrong, the more they’re going to double-down their efforts, which can scare more investors. Sooner or later they’re going to say “told you so,” but I think we’ve still got a ways to go before then.
Still, if you are nervous about where the market is headed in the near term, what can you do?
First, it’s fine to be a little cautious. Just don’t let yourself be scared out of the market. I recently asked my panel of experts on my Fox Business show, Making Money with Charles Payne, what they would do if they thought the near-term future of the market was uncertain or unstable, and we all said pretty much the same thing: You can sell some stocks and raise a little cash.
In fact, it’s very important to keep a certain percentage of your overall portfolio in cash anyway. It may not be gaining in value, especially with interest rates near zero percent, but it’s not losing value. In times of economic uncertainty, extra cash might help you sleep a little better.
I’d recommend starting with your losing positions, as those stocks that start selling off the quickest at the beginning of a market downturn are unlikely to come back anytime soon — if at all. Then you can look at your winners. You can let them run more and then look to sell higher, simply trim your positions a bit right now, or hang on to those with the best long-term potential.
Another great way to “cushion” your portfolio is to stay away from the high-flying names. Be more conservative, and think about the companies that provide necessary products and services that will do well in any kind of market environment. It’s not always about owning the next big thing.
When you’re talking about a market meltdown, nothing is going to be a great or safe investment — except cash. There’s always going to be a certain amount of risk in the stock market. What’s important is understanding that risk, making sure you are comfortable with i, and controlling your emotions.
Stick with the companies you know and like, and also remember that some of the best buying opportunities come in down markets. That cash you have on hand will come in … handy.
As of this writing, Charles Payne did not hold a position in any of the aforementioned securities.
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