What if They Closed the Stock Market?

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Financial Planner offers tips on becoming a long-term, successful investor.

Suggest to most any Wall Street professional that the stock market should be closed for a while and you will likely find yourself in an argument.

"That icon we know as the New York Stock Exchange is but one of several market places where billions of shares worth billions of dollars change hands almost every day," says financial planner, Joel Kelley. "On the NASDAQ Exchange, no paper is exchanged, it’s electronic. But the result is still the same. One party sells and another party buys."

This routine continues Monday through Friday, closing for weekends, holidays and national emergencies. "In reality," says Kelley, "the exchanges are the realm of trading professionals. They are the people who make the markets work, providing a forum for the buyers and sellers of these pieces of companies we call stocks. But, for the rest of us, it might be good if they closed the stock market for a while."

Here are Kelley’s reasons:

• Most of us are long-term investors. We invest for our retirement, our children’s education and our financial security. As long-term investors, we must endure negative market cycles and still manage to stay the course.

• Unfortunately, staying the course is easier said than done. Financial news is everywhere: television, radio, newspapers and the Internet. Markets move with lightning speed and the play-by-play coverage of the action may often sound more like an exciting sporting event than a financial report.

• How we react to the news as investors is one of the keys to long-term success.

• In our jobs and everyday lives, we work hard. Our society is one of the most work-centered on Earth. When it comes to building a house, selling merchandise or teaching our youth, idle time is not considered productive time – we are rewarded for "doing something." But, when it comes to investing, the urge to "do something" often hinders our success.

• Successful investing is really about buying a dollar of value for less than a dollar, then waiting until the true value is recognized and selling at a profit. Opportunities to buy stocks "on sale" don’t come along every day. In fact, you may see only a few "sale" periods during your lifetime.

• When market declines do come along, it’s akin to being able to buy winter coats in the summertime, when nobody seems to want them. We witnessed just such an opportunity during the bear market of 2002.

• None of us can predict when the next "sale" will come along, we can stay alert and be ready to take advantage of good opportunities. The wait can be long … years, in fact.

What do you do in the meantime?

• Make sure your portfolio is diversified, don’t put all your eggs in one basket.

• Maintain exposure in all asset classes including bonds, large company stock, small company stocks, growth and value style stock, international stock, real estate and cash equivalents. Index mutual funds are available in all these asset classes and at a relatively low cost.

• Proper asset allocation helps you reduce overall portfolio risk, while increasing the chances of good overall returns over longer periods of time. When one investment zigs, the non-correlate investments may zag.

• Also, be sure to match your investment selections to your risk tolerance. Don’t take on more risk than you can bear. You’ll sleep a lot better as a result.

"The great investor Warren Buffett once said, 'In the short run the market is a voting machine; in the long run, it’s a weighing machine.' Whether you invest in individual stocks or index mutual funds, the principle is the same," Kelley says. "Invest regularly. Set aside a portion of all you earn to save and invest."

"Be prepared to take advantage of bargains. Have your shopping list ready," he counsels. "Watch for the stocks (or stock mutual funds) you think have long-term worth. Buy them when they are 'on sale.' The companies and mutual funds that increase their earnings over time will eventually be weighed in the market place and rewarded with higher share prices."

Will the stock market really close? No, but you can act as if it is – and stay the course during volatile and uncertain times. You’ll be a much more disciplined and successful long-term investor a result.

Joel Kelley is a fee-only financial planner practicing in Asheville, North Carolina. He is the manager of Woodstone Financial, LLC. For more information, visit http://www.woodstonefinancial.com.

Contact:    

Joel Kelley, Principal

Woodstone Financial, LLC

One Town Square Boulevard, Suite 204

Asheville, NC 28803

Phone: 828.687.8082

Email: info@woodstonefinancial.com

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