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article imageOp-Ed: Here We Go Again, Again

By Jimmy Reilly     Aug 5, 2011 in Business
There is no doubt that the last ten years have seen markets that could frighten even the most savvy financial experts. The ride isn't over yet, but what do you do if you want to survive?
During my tenure as a Wall Street Stockbroker, I witnessed some of the most intense trading activity ever. I was working on the Floor of the New York Stock Exchange on October 19th, 1987, the day that has become known as "Black Friday". Fortunes were lost in mere hours, brokerage firms went bust and it seemed as though it were the end of the world, at least from a financial point of view.
We know now that it was not, in fact, the end of the world. The markets recovered, fortunes were regained, and life went on. The next Armageddon arose with the bursting of the Internet Bubble in the late 1990's and early 2000's. Again, big money went the way of the wind. There wasn't much time to recover from that thrashing, as the terrorist attacks of 9.11.2001 soon followed. In the ensuing years, it seemed as though every time the markets started to find their footing, something else crept out from the shadows to waylay the Dow. The housing/sub-prime-lending fiasco was up next, and the chaos in Washington did little to stop the bleeding. And now the US Debt crisis has investors out on the ledges again.
So what does the average investor do? We have all heard the horror stories of the vanishing 401K's, entire life savings being wiped out, people left penniless with no hope of retirement. But historically, the only investment vehicle capable of providing adequate returns on investment have been the financial markets. So how brave does one have to be to take the dive into the financial waters?
When the markets become the moral equivalent of runaway trains, many people try to figure out exactly when the market will bottom out. The most common strategy has been to pull money out of declining markets and park all the investments in cash. Unfortunately, the average small investor is slow to recognizing two events: a declining market, which can result in pulling out at the bottom, and a recovering market, which can conversely result in jumping back in at the top.
The Stock Market seems to be the only market place where people are willing to sell when prices are at their lowest, and buy at the highest. We search the web for the lowest airfares, car deals, furniture sales, etc, because we want to buy at the cheapest price possible. Low prices in those markets indicate that things might not be so great for the respective industries, and we are willing to take advantage of that. We love a buyer's market in Real Estate, but we run screaming from the same market on Wall Street.
The best advice I have ever been given in regard to riding out the never-ending waves of volatility in Financial markets has been something called "Dollar Cost Averaging." (If you are a Day Trader, you can stop reading right here, this won't interest you.)
Now, no strategy can, nor should it, make any guarantees for making gains or for avoiding losses. But if you are investing for any long-term goals, you have to take the long term view of things. Dollar-cost averaging is a simple concept: you commit a set amount of money to be invested in the market at pre-determined intervals, regardless of market conditions. In short, what happens is, you buy more shares when prices are low, and less shares when markets are high. The result is that your cost-per-share is often lower than the average price per share. This strategy requires strict discipline and a willingness to stay the course for long-term investment purposes.
The final thought here is that the average investor really needs to look into mutual funds as a long-term investment strategy. It puts the financial experts to work for you, and eliminates the need for John Q. Public to worry about which individual stocks, bonds or commodities to invest in. Times are very tough, and most of us don't really have the time to monitor an individual portfolio with the kind of attention required to assure success. Markets are always the best investment when times are the darkest. It's important to understand asset allocation portfolios, risk tolerance and investment strategies, so it is essential to speak with an advisor with a good reputation. This is a lot of information to digest, and this article should not be the sole basis for any investment strategy. I have hoped to introduce some talking points with which to open a dialogue with an experienced investment counselor.
Yes, times are horrendous right now, but times like this offer buying opportunities that could be lost when things recover. It might be worth noting an example here to close things out: A $1,000 investment in an aggressive-growth asset allocation after the Market Crash of 1929 was worth over $1 million at the close of 2010. So talk to an advisor, plot your strategy and then stick to it. Develop the discipline you need to invest long term and these times won't seem nearly as scary as they do now.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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