Stock Market: Don’t Panic

by Jen (March 6, 2007)

If recent stock market dips are making you panic or, worse, consider rearranging your money, there’s something you should consider: markets go up and down. Smart investors stay put more often than they move around.

I Will Teach You To Be Rich does a nice job breaking down why global economic fluctuations may have just about nothing to do with your own asset management. I would add a few more little history lessons we’ve seen over the years, which teach us that when one thing goes bad, another thing goes good:

• If we do go into a recession, interest rates will rise. At which point you’ll have plenty of time to move some money over to CD’s and money market accounts, where they can safely earn some very nice interest without being risked on stocks or bonds.
• If the real estate bubble does burst, the stock market will go up. This is something we’ve seen several times.

As I see it, the biggest risk anyone has right now is real estate. We’re seeing those interest-only loans go into default already: if you’re in one, get a better loan now while interest rates are still manageable. As for everything else, I see signs that maybe the economy is going to shift from this to that, from the other to the yet other, but there’s plenty of time to wait and actually see what happens before you make any changes on your long-term retirement investments.

Personally, my response to the dip in the markets last week was to move some money from a money market account into an IRA. Yes, into stocks and bonds. Why? Because this IRA is managed by a company that tweaks my portfolio a couple of times a year to make sure I’m on the right side of the fluctuations. There’s no wrong time to start investing toward retirement.

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