We've seen a pretty big drop in the stock market the last few days. Investors have been quick to log into their accounts and place sell orders on their stock positions. Is this a wise move? Hmm. On the one hand, we don't know how far the market is going to fall so it is a good idea to sell now and limit losses, right? On the other hand, if you sell now you will miss out on the price recovery whenever it does come. Quite the dilemma. So now what?
This is not 1929. While we certainly have some challenges, the economy is not doing so bad. We are adding thousands of jobs every month and companies are still making lots of money. The fundamentals haven't changed much since last week.
We need to get used to market volatility. In the digital age information moves very fast, and it is very easy to place trades, especially for professional traders with access to sophisticated computerized trading systems. These individuals are responsible for most of the trades on a given day as they work to play whatever news is moving the markets. The more significant the news, the more volatility we will see.
What you really need to ask yourself is how much risk you are comfortable with. If a week like this makes you check your account balance 10 times a day and worry about whether or not you should place a sell order, then I would say you have too much invested in equities. I can help you set up a bond ladder - that's more your style.
If you can handle seeing your account balance drop by 10, 20, or even 30 percent (gasp!), you have the patience to wait for it to come back strong, and you have confidence in the strength of the economy, then it's hakuna matata my friend.