The stock market goes up, then it goes down, then it goes up, and then it goes down. The main concept that needs to be remembered in this environment is the difference between being a trader and an investor. Although many of my friends are employed as traders, when it comes to their personal financial situation, they are investors, either voluntarily or by corporate mandate (you know who you are). While this is a great time to be a trader (if you know what you are doing, of course) as traders love volatility (the way to make money as a trader is to buy at one price and sell at a higher price in a relatively short period of time), it is an unsettling time to be an investor. With the amount of financial information and commentary available to people, a filter needs to be put in place to regulate what is really important. Here a just a few things to keep in mind, regardless of your situation. First, what is your time horizon for any given investment? If you are 43 and the money is in an IRA, you really shouldn’t be concerned about day-to-day, week-to-week, or month-to-month moves, as long as you are comfortable with your investment plan. If it is money being used to buy a house in three months, that is a different story. Second, what is your risk tolerance? Some people are very comfortable to be invested 100% in equities and real estate. Others don’t want to put there money in an FDIC-insured CD. Only you know your risk tolerance. A good financial advisor should be able to define and quantify that for you. Finally, what percentage is in what? Even you are the most conservative investor, you might 5% of your money in a hedge fund with massive sub-prime exposure. At the margin, this is your most risky asset. Are you prepared to lose it? Are you prepared for that investment to take ten years to rebound? Again, only you can answer that question.
While you are watching CNBC and the market is moving up and down, keep in mind who you are, what you are invested in, and what your time horizon is. These periods of volatility are good times to review strategies with your advisor to determine if you investments are properly positioned for your needs.