Now, while we’d love to help you out on the home front, we can’t do much for you there, as we’re not licensed marriage counselors. But what we can help you with – your portfolio – should help keep the squabbling to a minimum.
Many experts feel that the horse is already out of the barn, but things might get worse before they get better. Here’s a suggested simple plan for coping that’s easy to follow, will help stop the bleeding and helps to remove emotions from the process. If you follow this, you’re not bailing entirely on your portfolio, you’re just taking steps to protect yourself in case the market continues south:
- Sell one-third of your invested equity positions now.
- If the remaining two-thirds decline 5%, sell another third.
We might like to think we’re at or near a bottom, but the truth is, nobody knows.
If you sell a portion of your portfolio now, however, you need to be committed to get that cash back in when the trends reverse themselves. To that end, our entry strategy is as follows:
- When a fund crosses above its 50-day moving average, put 25% of the value of your portfolio.
- When the fund goes up 5%, put another 25% in.
By the time this happens, the 200-day moving average should be well within sight, and things should begin operating in line with our normal buy parameters once again.
The truth is that bear markets often end with a whimper rather than a bang, says Jason Zweig for the Wall Street Journal. Investors tend to believe that a market can only hit bottom when a huge number of investors dump everything, called “capitulation.”
But the problem is that no one can define this moment – not even market pundits. Like many other events, it’s best identified in hindsight.
Without any indisputable signs that a bottom has been reached, we might just be better off sticking to the strategy and waiting for the trends to appear.