Keep your san­ity as you watch mar­kets bounce

The Arizona Republic - - America’s Markets - Adam Shell

Vi­sions of the Dow drop­ping 500, 600 or 800 points in a day keep­ing you up at night?

You’re not alone.

Watch­ing the stock mar­ket ba­si­cally dive off a cliff on a reg­u­lar ba­sis isn’t easy on the nerves — or the 401(k) ac­count bal­ance, for that mat­ter. The Dow Jones in­dus­trial av­er­age took in­vestors on a wild ride this week. In a span of three trading days, it dropped 1,150 points, or 4.5 per­cent, to 24,389.

It ended Fri­day on down­beat note, tum­bling 559 points. And that swoon fol­lowed Thurs­day’s de­cline of 79 points af­ter an in­tra­day plunge of 784 points and Tues­day’s 799 point dive, the Dow’s fourth-big­gest ever.

No doubt, it was angst-in­duc­ing ac­tion. But if you own stocks in a re­tire­ment plan or trade them on your smart­phone you have to find a way to deal with fear and anx­i­ety now that wild swings, big price dives and am­pli­fied volatil­ity have come roar­ing back on Wall Street.

The good news? You’re not over­re­act­ing to the mar­ket’s re­cent change in tem­per­a­ment. The tur­bu­lence is real.

Af­ter Fri­day’s 2.3 per­cent drop, the Stan­dard & Poor’s 500 stock in­dex has closed up or down more than 2 per­cent on 15 trading days this year, mark­ing the most swings of that size since 2011, S&P Dow Jones In­dices data show. And the big moves, which in­clude those tripledigit drops suf­fered by the Dow, likely freak you out more be­cause there wasn’t a sin­gle day last year when the broad mar­ket closed up or down more than 2 per­cent.

Here are some tips on how you can bet­ter cope with the psy­cho­log­i­cal and emo­tional strain of a mar­ket wrack­ing up pa­per losses in your ac­counts.

❚ Don’t get caught up in the points: Sure, the Dow’s 559-point down­draft Fri­day and 799-point plunge on Tues­day can cre­ate enough stress to cause your blood pres­sure to spike. But with the Dow now trading above 24,000, de­clines of 500 points “ain’t what it used to be,” quipped Howard Sil­verblatt, se­nior in­dex an­a­lyst at S&P Dow Jones In­dices.

His data, which dates back to 1896, show the Dow has closed up or down at least 500 points 38 times. The first such move was the 508-point drop on Oct. 19, 1987 — a day known as Black Mon­day be­cause of the huge 22.6 per­cent loss.

The Dow closed Fri­day down 9.1 per­cent from its Oc­to­ber high. What’s more, in a typ­i­cal year, the mar­ket has suf­fered an av­er­age drop of 13 per­cent, says Brad McMil­lan, chief in­vest­ment of­fi­cer at Com­mon­wealth Fi­nan­cial Net­work. “So this is well within the nor­mal range,” he says.

❚ Shift to more de­fen­sive pos­ture: If the re­cent volatil­ity has made you ner­vous and caused you to lose more of your money than you are com­fort­able with, now’s the time to con­sider di­al­ing back your risk, says Ben Phillips, chief in­vest­ment of­fi­cer of Even­tShares.

“We think in­vestors should be us­ing mar­ket ral­lies to po­si­tion their port­fo­lios more de­fen­sively,” he told USA TO­DAY. “While mar­kets ap­pear to be over­sold on short-term met­rics, we feel stocks could fall much fur­ther if the U.S.-China trade dis­putes con­tinue to es­ca­late and (cause) a slow­down.”

❚ Raise cash if you might need it: First, make sure your plan is still in line with your ob­jec­tives. “If it is ... stick with the plan and re­mind your­self that you’re a long-term in­vestor and not a day trader,” says Di­a­hann Las­sus of wealth man­age­ment firm Las­sus Wher­ley.

But there’s one ex­cep­tion, she says. “If you have a need for cash in the near term, you may want to raise a lit­tle ex­tra in case this volatil­ity con­tin­ues,” she says.

❚ Em­ploy a “bar­bell” strat­egy: Now’s a good time to build a port­fo­lio that pro­vides both of­fense and de­fense, says Joe Quin­lan, mar­ket strate­gist at U.S. Trust.

He rec­om­mends that on one side, in­vestors add to their stock in­vest­ments in ar­eas such as health care, de­fense, cy­ber­se­cu­rity and tech­nol­ogy. On the other side, add to your help­ings of short­du­ra­tion bonds as a way of low­er­ing your risk.

❚ Con­sider buy­ing the dip: If you have the courage, now might be a time to step in to buy stocks when they are beaten down and on sale, says Thorne Perkin, pres­i­dent of Pa­pa­markou Well­ner As­set Man­age­ment.

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