Some Advice

Stay the Course

The last 9 business days have been quite a ride.  Today we had some relief from the relentless 22 percent plus freefall of the Dow and S&P 500 over the course of two weeks.  Many people paniced and sold their equities at a very low price in an attempt to salvage the remaining value of their shares.  For those that held steady and remained in the equities market were rewarded for their patience.  The markets gained back almost half today of what they gave up over the last two weeks.

Dollar Cost Averaging

In spite of the gains today, there remains great value right now.  Now is the time to be buying.  I do think we'll continue to see some erratic behavior in the markets, but one should seriously be considering buying as much as possible at these fire sale prices.  These are certainly the times that the Warren Buffet's of the world get richer.  The past 1+ year has been an opportunity to store up cash and wait for the existing real estate and credit bubbles to completely deflate.  Now ( and the next several months ) is the time to pounce.

Not only is now a good time to buy large quantities of equities, but it's also a wonderful time for those slow and steady Dollar Cost Averagers to round up a greater number of shares with the same dollars.  Case in point, I contribute $174 out of each pay check to my 401K.  Although the value of my existing shares has dropped about 30 percent, I will now be able to get about 30 percent more shares with my same $174.  I went from purchasing 8.4 shares last month for $174 to 12.9 shares purchased with $174.  That is the power of Dollar Cost Average.

Diversification

Up until today, the Dow lost 38% of its value since July 2007.  During the same period, the S&P 500 lost 42%.  Me?  I appeared to beat the markets with only a 26% reduction in asset values.  As I stated toward the end of last year, I intentionally have been storing up cash this year in anticipation of the financial meltdown in this country that would bring buying opportunities.  Fortunately, by the time the market crashed the last two weeks, I held about 27% of my portfolio in cash.  I attribute my beating th market to the fact that I was not overexposed in equities.  Additionally, over the past two years I've included gold and platinum bullion coins in my portfoliio.  With equities tanking, commodities have gone up considerably.  I've seen a 40+ percent increase in my bullion values over the past 9 months.  Gold, too, has helped diversify myself such that my overall portfolio downturn did not match the S&P 500.