The U.S. stock markets are now at a major crossroads.
There are a group of experts that think that the current stock market weakness is temporary. They believe that the next great stock market move is to continue higher.
There are another group of experts who think that the stock market is old and tired. After more than five years of investment gains, it is finally time for a stock market decline.
I am sorry to disappoint you. I don’t have the answer for the next great stock market move. But I can think of five things that you should be thinking about now regarding your stock market investments.
First, wait on the sidelines with any new investment money that you have to invest. The recent stock market momentum has slowed. Lower in stock prices may continue. Having money to invest in lower stock prices is a good thing.
Second, it may be too early to “buy on the dip.” Let the talking heads in the financial media do that with their own money. The best stock market investment strategy for you is to have patience with stocks. Wait for them to stop going down.
Third, ask yourself a very simple risk management question. “How would you feel if you lost 10% of your stock market account value over the next few weeks?” How about 20%? How about 30%?
Make yourself aware of how much stock market money you feel comfortable losing. There is a certain dollar amount that you are not willing to lose in the stock market. Find out what that number is now.
Third, make sure that you talk about your dollar loss number with your current financial advisor. Don’t ever assume that your current financial advisor is aware of your stock market risk tolerance. Now is the time to remind him or her.
Fourth, set up your stock market stop losses now. Stop losses are prices levels that will automatically sell your stock positions. Set your stop losses in order to preserve stock market principal. This is especially important if you manage your stock market investments on your own.
Fifth, you own some stock market investments that have lagged others. Now is the time to sell those laggard investments.
Take whatever investment gains you have or don’t have now. Put the proceeds into the safety of the money market. You will then have money to reinvest in better stock market ideas after the stock market finds a meaningful bottom.
Ric Lager
Lager & Company, Inc.
