While stock markets typically decline in the face of such dramatic news as the attacks of September 11, such declines have been followed by substantial recoveries. This correction has been so severe that the recovery may be slower this time, but it will come.
Market timing is always most tempting late in bear markets, but it’s a trap–stock market returns often come in short, unpredictable spurts, and the best part of an up-trend is already history by the time the “trend” is evident. The soundest strategy is to stick with a set mix of stocks and bonds based on your unique risk tolerance and goals, and to re-balance back to that mix when necessary.
When bonds have been falling and stocks rising, sell some stocks and buy some bonds. At times like the present, when bond market values have been rising and stocks falling, sell bonds and buy stocks. In addition, take advantage of some opportunities to harvest tax benefits and upgrade holdings.
Investing during recessions is always scary, but the best buying opportunities for stocks occur during the worst economic environments, such as the Great Depression, the ’73-75 energy crisis and recession, and the ’82 recession, when we saw 15%+ mortgage rates. Recessions have always been a fact of economic life, coming and going, and defying prediction. They don’t last forever, and neither do bear markets.
