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Take Time to Reassess

Periodically, you should reassess your portfolio, finding ways to increase your comfort level with your stock investments. Consider the following tips:

  • Develop a stock investment philosophy. Approach investing with a formal plan so that you can make informed decisions with confidence.
  • Remind yourself of why you are investing in stocks. Write down your reasons for investing in each individual stock, indicating the long-term returns and short-term losses you expect. When market volatility makes you nervous, review your written reasons for investing as you did.
  • Monitor your stock investments so you understand the fundamentals of those stocks. If you believe you have invested in a good company with solid long-term prospects, you are more likely to hold the stock during volatile periods.
  • Review your current asset allocation. Compare your current allocation to your desired allocation. Consider rebalancing your portfolio, reallocating some of those stock investments to other alternatives.
  • Determine how risky your stocks are compared to the overall market. You can do this by reviewing betas for your individual stocks and calculating a eta for your entire stock portfolio. Beta, which can be found in a number of published services, is a statistical measure of how stock market movements have historically impacted a stock’s price. By comparing the movements of the Standard & Poor’s 500 (S&P 500) to movements of a particular stock, a pattern develops that gauges the stock’s exposure to stock market risk. Calculating a beta for your entire portfolio will give you a rough idea of how your stocks are likely to perform in a market decline or rally.
  • Keep in mind the tax aspects of selling. While you may be tempted to lock in some of your gains, you may have to pay taxes on those gains if the stocks aren’t held in tax-advantaged accounts. You’ll have to pay at least 15% capital gains taxes (0% if you are in the 10% or 15% tax bracket) on any stocks held over one year. If your gains are substantial, it may take longer to overcome the tax bill than to overcome a downturn in the market.
  • Don’t time the market. During periods of market volatility, investors can get nervous and consider timing the market, which typically translates into exiting the market in fear of losses. Remember that most people, including professionals, have difficulty timing the market with any degree of accuracy. Significant market gains can occur in a matter of days, making it risky to be out of the market for any length of time.
  • Remember that you are investing for the long term. Even though short-term setbacks can give even the most experiences investors anxiety, remember that staying in the market for the long term through different market cycles can help manage the effects of market fluctuations.

Please call if you’d like to discuss this in more detail.

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Copyright © Integrated Concepts 2012. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

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