Most people get interested in stocks when everyone else is, yet the time to get interested is when no one else is.
Overland Park, KS (Vocus) February 26, 2010
“Most people get interested in stocks when everyone else is, yet the time to get interested is when no one else is,” says Duane Roth of The Roth Companies. Duane’s firm belief is that a willingness to run against the herd is critical to long-term success as an investor. Nonetheless, it can be difficult for an individual investor to stay calm, and committed to his or her investment strategy, when the financial markets are roiled by recession -- resulting in unemployment, foreclosures, bankruptcies, excruciatingly tight credit and often, though not always, plunging stock prices. Beyond the economic consequences, recessions have the ability to simply frighten people into making mistakes. Since World War II, there have been 10 such periods of severe economic contraction, each between 6 and 18 months. And the longer a recession lasts, the more likely it will induce investors to make ill-advised decisions.
What can you do to protect your investments from recessions? For one thing, don’t allow economic and market activity -- which you can’t control, anyway -- to dictate your investment decision.
A better choice could be to stick with time-tested, investing fundamentals, such as:
- Diversification. One way to potentially reduce the risk of short-term volatility is to diversify your portfolio -- in other words, not put all your investment eggs in one basket.
- Asset allocation. You can achieve a high level of diversification through asset allocation -- spreading your money among stocks, bonds and money market instruments. When one asset class hits a rough spot, the other asset classes might rise in value, which could help smooth out volatility.
- Rebalancing. Rebalancing involves periodically adjusting your investments to keep them aligned with your investment objectives and your personal style. And finally, ask yourself this question: Do you believe the markets will be higher in 10 years? If you said yes, why wouldn’t you want to be fully invested now?
When faced with a recession, should you give into temptation, pull your money out of the market, and wait until the economy regains its balance? In truth, recessions are a tricky call -- they’re not even officially confirmed until months after they begin. If you can’t tell when a recession has started, how can you be sure when it has ended? It’s equally difficult to predict volatile, short-term performance in the financial markets. Many experts would say that consistently identifying market peaks and troughs is virtually impossible. Stock prices have a tendency to move explosively. If you’re sitting on the sidelines when the market starts to rally -- and you probably won’t recognize a major rebound until long after it’s gotten underway -- you could miss a significant opportunity.
As a financial advisor, Duane Roth understands the value of…
- Maintaining a strict focus on your critical goals in all market conditions.
- Executing your customized investment strategy to pursue long-term growth while managing short-term volatility.
- Making adjustments to your portfolio as often as circumstances warrant
Together we will create your personalized investment strategy -- with an emphasis on managing risk in times of recession, while aiming to produce relatively consistent and predictable results in all market environments.
The Roth Companies is available to help with any questions or concerns with your portfolio or business needs...we are here to help. You can contact us at 913-693-ROTH (7684), 800-551-ROTH (7684) or go to our website at http://www.therothcompanies.com .
Investing is subject to risks including loss of principal invested. No strategy such as asset allocation, diversification and rebalancing can assure a profit nor protect against a loss. Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC., Investment Advisor Representative, RDA Financial Network, a Registered Investment Advisor, Cambridge and The Roth Companies, Inc. are not affiliated.