Is the stock market driving you insane?

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here Monday mornings.

Wes-Moss-032011-USE-THIS-VERSIONThe stock market is a giant roller coaster, and we are currently white-knuckling through a series of crazy twists, turns, plunges and loops. As I write this, the Dow Jones industrial average has been down for seven of the last eight weeks, and that one “up” week was just a hair above break-even. That’s why your 401k and IRA are feeling a bit queasy.

This wild ride is powered by what I call the  Dirty Dozen of economic factors. They’ve been driving the market since the beginning of May and have been especially vengeful in June. The worst offenders:

  • Europe’s continued debt crisis –- specifically Greece and fear that its problems will cause financial trouble in other countries.
  • Stubbornly high unemployment rates
  • The economic “soft patch,” or slowdown, in the U.S.
  • Fear of a further stock market pullback
  • Continued weakness in the housing market

Rough stuff — and there is no sign things will improve anytime soon. But here are three investment keys that just might keep you sane in this period of market insanity:

Balance your buckets: During any market correction, balance is your best friend. Your investment assets should be divided between the cash, income, and growth buckets. The cash bucket contains CDs or money-markets, the income bucket contains various types of bonds, and the growth bucket a diversified mix of dividend paying stocks. So far in May/June your growth bucket is probably down close to 7 percent, but the bonds in your income bucket are up. Vanguard’s total bond market index (BND) is up 1.4 percent since the end of April, compared to a minus-7 percent return for the S&P 500.

Focus on income: Each one of your buckets will produce some level of steady income regardless of the stock or bond market’s direction. Cash and CDs will pay you interest (at very low rates today), bonds can pay interest anywhere from 1 percent up to 7.5 percent depending the type, and stocks can pay dividends anywhere from nothing to over 5 percent. So in combination, your portfolio should have an “overall yield,” or a steady, predictable amount that it should produce each year in income — regardless of the stock market’s direction.

Be Patient: If you own a stock, stock mutual fund or stock ETF you must give it time to grow. We would all like to get a steady 7 or 8 percent annual return on our investments, but the market just doesn’t work that way. However, from a very long-term perspective there is no doubt the stock market has trended from the lower left of the page to the upper right. That trend will continue here in the U.S. during the next 5 to 10 years, despite all of the problems that we face.

– By Wes Moss, for Atlanta Bargain Hunter

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8 comments Add your comment

DW

June 27th, 2011
8:59 am

DW

June 27th, 2011
9:02 am

Thats what they said about Japan in the 90’s and look where that got em

n

June 27th, 2011
9:18 am

creme pie cathy

June 27th, 2011
10:19 am

use every dime you can get to open an account for currency trading; margin it as high as they will allow you to.

Hare

June 27th, 2011
11:15 am

The problem with Japan was that they couldn’t figure out which way they wanted to go. One minute they were pumping stimulus into the economy and the next they were putting on the brakes trying to pay down debt. It was ebbing and flowing with every administration and political wave. Regardless of your opinion, we have both a growth and a debt problem in this country. We need to get the growth going, but without private demand driving it, there might need to be additioanl public push to this train.

Hare

June 27th, 2011
11:18 am

Also, if you look at Japan, there were plenty of up markets that you could have profited from. Just like over our last 10 years, you could have easily allocated your money in both bonds and stocks and in the right sectors (energy) and profited from different cycles. Also, if you do focus on dividend paying stocks, you can continue to earn a return even if the market value stays flat. I love Wes’ focus on income because everyone is always so focused on things go up in value, but I believe that there is more value in seeing my cash flow every month. Somebody needs to tell Cisco and Microsoft this fact. They are sitting on huge piles of cash. Pay me some and maybe your stock price would go up!

Destin Dawg

June 28th, 2011
7:20 am

you can just buy a good no load balanced mutual fund like PRWCX.. OAKBX.. or PRPFX.. get stocks and bonds that will outperform the market with less risk…

Destin Dawg

June 28th, 2011
7:23 am

Joe Biden…. sorry you can’t be anti businees and create jobs at the same time ??!!