Market Volatility Making You nervous?
This post is just a reminder that the latest market volatility should not be making you nervous. If you have followed my “Retirement Planning” posts back in 2011, this latest stretch of market volatility should not be bothering you at all.
If the market volatility is making you lose sleep at night, then your chosen equity allocation is not correct for your particular risk tolerance. If you missed these previous posts or would like to review them again, you can read my posts from March 2011 – Post #11, Post #12, and Post #13. These posts allow one to determine a proper equity allocation that is consistent with your level of risk tolerance.
In our particular situation we currently have about 36% in equities and another 9% in precious metals (i.e., gold and silver) as a hedge against currency devaluation which is happening at a rapid pace in all western economies. I am comfortable with having about 45% in volatile assets. My other financial assets are in cash, money market accounts and short-term bond funds.
We are still living on our bond ladder which has about 7 more years to go. So market volatility does not bother me in the least. In fact, I am hoping the stock market takes a significant dive so I can buy more equities at good valuations like they were in 2009.
So my general advice now as always has been to find your comfortable percent equity allocation and stick with it through all market volatility. The only changes I would make are re-balancing your portfolio. You can read about this in my Post #15.
The only specific thing I would do right now is to sell all “intermediate and long-term” bonds or bond funds. There is a lot of interest rate risk in these type investments. Long-term interest rates have gone up recently, so these funds have already taken a hit. I think rates will probably come back down some in the short term, but, in my opinion, the bond market bubble we are in right now makes it just too risky to own any bond funds with average maturity dates greater than three years.
One other thing you might consider doing, if you have not already, is buy some precious metals. You do not buy precious metals as an investment; you buy them as a hedge against economic chaos. Gold has dropped about 20% and silver has dropped about 30% in the last few months. It may not be a bad time to buy these hedges if you do not own any. But in the current volatile market environment, I would buy precious metals over a few months or longer as the price of gold and silver may go lower before they go higher.
I think the current market volatility is going to be with us for a while, so proper equity allocation is important.
For those of you who have come back to this site to see more pictures of the Bahamas, I have added a few below (remember to click on picture to enlarge).
Sunset off Elbow Cay
Little Harbour in the South Sea of Abaco
The Abacos is one of the best sailing areas in the world
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You must understand how the stock market operates prior to investing in it.
Supply and demand is how the stock market operates.
The amount of shares of stocks is what makes up the supply.
The demand is determined by the amount of shares that investors are
interested in purchasing. Furthermore, be aware that with every shared that is bought, there is
a person on the other side that sells the share.