As the Dow edges closer to 11,000, pundits underscore the psychological impact of crossing that benchmark. Though opinions on the importance of this number vary, it is significant that the market has made a thousand-point gain in about a year - a relatively short space of time. Perhaps this progress is even more remarkable following a fiscal meltdown when many analysts were predicting a slow comeback - with years elapsing before the Dow hit numbers seen prior to the fall of 2008. If this current rate of recovery has the pros scratching their heads, what is the individual investor to do? How do smart investors plot a course to rebuild their portfolio and their savings? Here's a summary of some key talking points from investment professionals.
What is fueling the recovery?
Some economists believe the recovery is primarily based on expectations that this one will follow the pattern of previous rebounds. Others believe we are in uncharted territory where historical precedents don't apply. For the individual investor, it is a question of weighing the psychological impact of the upswing - confidence creates more confidence - against the opinions of those who think the market fundamentals do not support a continued rally that pushes the Dow past 11,000.
The importance of research and discipline
Decisions based on fear and anxiety are usually poor ones. The pros urge individual investors to:
- Be realistic about goals; determine the appropriate level of risk based on age (and retirement plans). See which sectors are most likely to prosper and change strategy if necessary to be more in tune with today's economy. Be on the lookout for opportunities - good companies do go through tough times - but do all necessary homework before investing.
- Remember that Wall Street focuses on short-term results (numbers for the next earnings season), and that individual investors should consider the long-term view. Have a strategy and stick with it.
- Recognize that it is more difficult to put aside past bad news than embrace positive information. Resist the urge to monitor the performance of your portfolio and retirement accounts on a daily or weekly basis. It is all too human to feel anxious, but don't act impulsively out of fear.
- Keep it simple. Invest in what you know and understand. DonÂÂ’t get spread too thin, and avoid anything - portfolio strategies, investment vehicles, etc. - that you donÂÂ’t understand.
Although the financial crisis is over, the way forward might still be choppy from time to time. In times like this, it is difficult to regain full confidence in the market and develop and implement a solid investment strategy. A sound long-term plan will go a long way in helping you sidestep the emotional booby traps that can derail your personal financial recovery.
As always, the commentary above is general information and should not be taken as a substitution for expert advice from your tax and investment professionals.