The day after Halloween, the Down drops nearly a four spot on us, over two and a half percent, and we’re left wondering what the heck we should do. I mean, is the credit crunch starting to take effect? Just yesterday the Fed dropped the target interest rate, things were looking pretty good, and today oil spikes and the Dow takes its biggest dip in a while (not a long while, but it’s a big dip and it’s kinda scary). So, what do you do?
If you were well prepared, you should do nothing. If you are five years away from retirement and had 100% exposure to the stock market, this is a wake up call. You have too much in the stock market. If you’re five years out from tapping into your nest egg, you should be at a point where a 2.6% fall isn’t going to bother you too much. Take this as a little warning shot across the bow and balance your portfolio to something that is more fitting someone that close to retirement.
If you’re forty years out, this 2.6% is, if nothing else, an opportunity to put more money in. The Dow just had a 2.6% haircut in one day. It’ll go back, it always will, so you want to be putting a little more money into the market so when it does recover over the course of the next 40 years, you’ll get 2.6% more. If the Dow never recovers, well the last thing you need to worry about is whether your stock portfolio is strong because the economy will be in the tubes.