The sky is falling! The sky is falling! No, wait … that’s just the value of my investments falling.
The markets are going up and down; sometimes by a lot, sometimes by a little. What’s an individual investor to do?
Should you ride out the “storm”? Should you sell? Should you buy?
Also for consideration: Interest rates are low. Actually interest rates are almost non-existent if you have money in a bank, a money market fund or some CDs.
The good news: Mortgage rates are at record lows. Can you buy a house? Now is a great time.
Can you re-finance your existing mortgage to a lower interest rate? Not if you’re underwater because foreclosures around your house have driven down home values.
What to do? What to do?
Individual investors should act cautiously. As volatile as the markets are currently, selling low, or buying low, seems like a much greater possibility than selling high. For the long-term investor who does not need to live off of his or her holdings any time soon, now is a good time to stay the course or buy low. If you have a regular investment schedule for your retirement plan at work or a regular investment schedule for personal investments, keep doing what you are doing.
History says the markets will come back… eventually, if not sooner.
In a sense younger investors are in a better situation than older investors. They can stay the course because they have a longer window in which to allow investments to recover. It is not necessary to react to every wild swing in the markets.
For the individual investor who is close to needing retirement funds, or who is already using retirement funds, hopefully your holdings are already appropriately conservative. You won’t necessarily escape the market gyrations but the impact may not be as severe. Now is as good a time as any to assess the appropriateness of your investments. Perhaps you need to rebalance your holdings. Perhaps you need to get more conservative.
There are not many good options for cash investments with interest rates at record lows. But if keeping more of your investments in cash-type instruments gives you peace of mind, find your best cash options and use them.
Now would also be a good time for people with mortgages to assess whether a substantially lower interest rate is available and attainable. The problem for many may not be qualifying for a mortgage re-finance, it may be in getting an appraisal that supports the mortgage amount being re-financed. Appraisals that put home values underwater are a problem in many areas. If that is the case you may just have to live with your current mortgage.
Regardless of where you fit into these scenarios, be careful and be patient.
The sky is not falling!