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Thursday, June 16, 2011
Greek default, contagion effects, imploding euro, fragile European Union, rioting in the streets, weakening economies, and "flight to quality." The unending tsunami of negative market news has investors on edge, and fear has grabbed the baton from greed. Still on investors' minds is the 2008/early 2009 market debacle. Some are expressing a "here we go again" attitude.
With this backdrop, Chuck Jaffe of MarketWatch has 5 questions investors should ask.
To me, the most important is his third question about asset allocation and age and thinking long term. As he points out, there are many younger investors with low stock allocations who could be looking at the present situation where stocks have moved lower as an opportunity to buy great companies at bargain prices. He points out that they may be putting too much emphasis on recent market movements in their decision to stay away from equities. The guiding principle is that, in the accumulation stage, you want low prices.
At the other end of the spectrum are those in retirement who still have portfolios that are more appropriate for their working years. Those in the nest egg paydown stage should keep in mind that, when markets fall, it takes time for them to recover - sort of like when they engage in too vigorous physical activity.
Thinking through Jaffe's questions can help investors position themselves correctly, weather the down turn, and avoid potentially costly mistakes.