Deja Vu All Over Again As Dow Tumbles 223.55 On Friday

Keep your risk within your tolerance and keep ahead of inflation

November 11, 2007       Leave a Comment
By: Jerry Cole - Retirement, Investment

Printer Friendly Story View

Just when it looked like the market was getting over the jitters caused by the subprime loans, BANG , "Deja Vu all over again," as Yogi Berra (Yankee baseball manager) would say.

The market for junk corporate debt (rated less than investment grade or BBB) , which rebounded in September and October softened. Investment grade bonds of some banks and financial companies dived to levels that made them look as risky as junk bonds. Worry over subprime mortgage securities reared its ugly head again.


All this, plus Fed Chairman Ben Bernanke's remarks to lawmakers that the Fed sees growth slowing "noticeably" this quarter and continued high energy prices, were just too much for the market. Friday's 223.55 point drop completed a 3-day loss which was the worst in 5 years. The Dow has now fallen to 13042.74 from its record close of 14164.53 set on Oct. 9. That is a 7.9% drop however, the Dow is still up 4.7% so far this year.

So what is a body to do? No doubt a good part of the pull-back was due to some investors booking profits. After all, the market has been an excellent performer for the past 5 years. But depending where you are age-wise in the investment cycle, pull-backs can be a good time to add to your investments.

It comes down to managing your risk. We are not alone in letting emotions drive investment decisions. Even the most experienced and sophisticated institutional investors are hostage to such emotions. To help mitigate the impact of those emotions, you have to employ risk management.

One method used to manage risk is asset allocation. Numerous studies have highlighted the importance of asset allocation as the primary driver of a portfolio's volatility. The right mix of asset classes will help your portfolio achieve your investment goals in keeping with your risk tolerance.. You have to balance total portfolio return against total portfolio risk.

By diversifying across a variety of return opportunities such as geographies, sectors and styles, the impact of any single asset class is minimized. This will take continued balancing to keep your investments within your risk tolerance.. Where you are in the work cycle will have everything to do with your allocation.

The market will continually test your tolerance to risk. There are a lot of wild cards out there right now. But is that really unusual? We tend to judge the economy by what is happening to us locally, however the broad economic outlook is good. To be sure, some sectors will be more immune than others to the changing economic conditions. One thing for sure is that we can't put the money under the mattress.

So keep your risk within your tolerance and keep ahead of inflation.

I invite your questions.

(The opinions expressed are solely those of the author and not Gen worth Financial Securities Corporation.)

---

Printer Friendly Story View

	Prior Article February 10, 2020 by: Rachel Reh Family Winter Fun Fest is BACC Hot Spot for 2/10/2020
	Next Article February 2, 2020 by: Kathy Rupert-Mathews MOVIE REVIEW: "Just Mercy" ... You Will Shed Tears, or at Least You Should

Agree? or Disagree? Leave a Comment!

---

Jerry Cole - Retirement, Investment
Jerry Cole has been a Financial Planner for almost 30 years in the Tri-City area and holds and MBA from USC. More from Jerry Cole - Retirement, Investment

---

Send This Story to a Friend!       Letter to the editor       Link to this Story
Printer-Friendly Story View

---

--- Advertisments ---