Wednesday, August 12, 2009
If you look at the historical charts of the Dow Jones and S&P 500 stock indexes, you can't help but notice that over time the indexes go up and they go down. In general, they tend to go up more than they go down which is why people like to be invested in the stock market. With the recent return of 50% in the S&P 500 over the past 5 months, most stock watchers would suggest that it may be time for a pull back. While most people have not recovered their losses from last year, this recovery since March has been a welcome surprise to those who were overly pessimistic and were predicting the Dow Jones to go down to 5000 (it's in a 9200-9300 range right now!). So what should you do? If you agree that it's time for the market to take a breather, you can sell some positions where you have gains and take some profits. If the market drops 5-10% in the short term, you have cash to buy back in at lower prices. You will have to decide how much you want to sell for your repositioning, but do not sell everything. If the market continues to climb, having some positions still invested will help you. Remember, it's better to be wrong and see the market continue to go up, than it is to be wrong and watch the market tank before you could get out. The market will be watching the Fed today to see how they think the economy will effect the markets in the short term. While this is entertaining to some, its not terribly important for long term investors.