Whether you've
made moneyor lost money over the past couple of years,
the markets have taken just about everyone's finances on the
roller-coaster ride of their lives. Now that the dust has
settled somewhat, it's anyone's guess which way stocks and
other investments will move next. Yet no matter whether
stocks keep rallying or the bear market starts up again in
earnest, you can take steps right now that will help you
avoid panicking the
next time the market starts dropping.
Where we've been and where we're going
It's hard to believe that it's only been a year since
the worst of the financial crisis started to take root. Since
then, we've seen some huge market extremes. We've suffered
through horrific plunges that caused panic and fear. We've
also seen a historic rally that bailed out many investors
from the worst of their losses, and gave bottom-hunting
opportunists the
profit opportunity of a lifetime.
The lesson that investors have had drilled into their
skulls is that
stocks are risky. And while you may have seen your
portfolio recover substantially over the past six months, you
still might realize that you can't afford to bear that risk.
If so, then now's a great time to make changes to your
investments that will get your risk level under control.
Don't put all your eggs in one basket
When stocks perform well, it doesn't seem to matter
much what you invest in. During the last bull market, the
vast majority of stocks performed extremely well. Of course,
some stocks did better than others, with
Monsanto (NYSE: MON),
GameStop (NYSE: GME), and
Apple (Nasdaq: AAPL) all seeing their shares
rise tenfold or more from the beginning of 2003 to the end of
2007. Yet nearly half of the current members of the S&P
500 saw their shares double during that period -- and the
vast majority earned at least some gains.
Last year's losses, though, showed just how valuable a
diversified portfoliocan be. Although some companies
managed to post gains last year, many others -- even huge
ones that many thought were completely safe -- saw their
shares crash downward. Just look at these well-known
names:
Stock
2008 Return
McDonald's (NYSE: MCD)
8.3%
Wal-Mart (NYSE: WMT)
19.9%
Boeing (NYSE: BA)
(49.4%)
Dow Chemical (NYSE: DOW)
(57.5%) Continued... |