WHEN GOOD INVESTING GOES BAD
for surviving bear markets? Don’t look. Don’t look at your state- ments, don’t look at how the markets are doing on a daily basis, and try to concentrate on other things. I know that is tough. I have many clients who are guilty of watching and charting their investments on a daily basis. These same people want to get out of their investments when the market goes down and then reinvest when the market begins to go back up. As I’ve said before, you don’t know when this will happen and by pulling out of the market, you may miss out on potential growth before you reenter it. (Again, please refer to Table 8.1 for a comparison of what happens when you miss some of the market’s best-performing days.)
Special note: Don’t be afraid to sell a mutual fund, stock, or other investment that is not performing very well and hasn’t been performing very well. Sometimes investments don’t come back from their poor performance, and sometimes they will. However, there are occasions when you need to evaluate your portfolio and cut your losses.
Another strategy designed to combat the unknown elements of the stock market is called “dollar-cost averaging,” or DCA. When we discussed systematically investing over a period of time, we touched on DCA. Although we didn’t mention it specifically, DCA can pro- vide a good means of getting your feet wet in the market without the potential headache of jumping in headfirst. The tenet of DCA is sim- ple: By investing systematically over a long period of time, you will normally see that you have a lower average cost per share, which can help increase your overall return.
Because no one knows from one day to the next what the market is going to do, investing over several months rather than in one lump sum amount may be a better idea for those investors who are a little more squeamish about investing, or who have a lower risk tolerance. Employing DCA also means that you may wind up purchasing shares