Published January 2001

Don’t let roller-coaster market throw you for loop

There are two things we can be fairly sure of in the investment world. The first is that prices will sometimes go up. The second is that prices will sometimes go down. When the ups and downs become too volatile, many investors may be tempted to make snap decisions based on short-term events. But the secret to successful investing during jittery markets is to stay calm.

Of course, that’s easier said than done. However, you can do it. Here are a few suggestions that may make it easier:

Concentrate on long-term objectives. It’s important to develop an investment strategy, stick with it over time and keep your long-term objectives in sight. You may want to adjust your portfolio to reflect changing circumstances, but don’t abandon proven principles of investment success, such as diversification and striking the proper balance between risk and reward.

Look for opportunities. During choppy markets, many people turn to “defensive” industries such as consumer staples and drugs. These sectors rarely are out of favor for extended periods of time for the simple reason that people always will need these products and services. Other sectors, while struggling along with a down market, still may be poised to do well during the next upturn.

Accept normal market adjustments. Sometimes, when the market appears to be going through convulsions, it’s actually “shaking out” excesses of one kind or another in a move toward equilibrium. Such may have been the case this past spring, when overpriced technology stocks fell sharply, causing a drag on the market. While these shakeouts can seem unsettling at the time, they’re often healthy for the market in the long run.

Put your idle money to work. It’s probably not a good idea to ever get totally out of the market, no matter how turbulent things may get. By being on the sidelines, even for a short time, you’re likely to miss out on opportunities for growth, especially given the speed with which markets can turn around. But if you do have money that’s not invested in the market, at least make sure it’s working for you — in a money market account, for example. Your money will earn a decent rate of return and, more importantly, will be available to invest when you’re ready.

Shelter money in qualified retirement accounts. Put as much as you can afford into tax-qualified retirement plans, such as an IRA or a 401(k). The money you invest in these plans is certainly not immune to market fluctuations, but it will grow on a tax-deferred basis — which means it will grow much faster than if it were placed in an investment on which you paid taxes each year. (And, if you have a Roth IRA, your money will grow tax-free, provided you meet certain conditions.)

By following these suggestions, you should be able to keep your composure, no matter what the market throws your way. And when it comes to investing, the less emotion that’s involved, the better.

Eric Cumley is an Investment Representative with Edward Jones Investments at 9930 Evergreen Way in Everett. He can be reached at 425-355-2008. Edward Jones is an NYSE-member investment firm with more than 7,000 locations nationally.

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