Buckle your seatbelts. International markets have been a bit rocky in recent weeks. The real bears have predicted that we're in for another big one – thanks to the European debt crisis.
But they can keep their negativity. I'm young enough to think of volatility as my friend.
This "made in Athens mess" as one commentator put it that we're currently experiencing isn't anywhere near the freefall that lasted from Lehman Brothers collapse in August 2008 until March 2009.
Even in May 2010 it's easy to look back to February and March of this year and realise that the current dip isn't as bad as what we experienced a few months ago.
So, you can either let market turbulence get the better of your nerves, manage it, or cash in on it.
I've got 20 years to go until retirement and whenever my investing nerves get the better of me I always put doubts to rest by looking at a graph of the FTSE 100 over 1, 3 or 5 years (although most Kiwis probably relate better to the NZX50). Whatever the current bloodbath this is a visual reminder that we've been there before.
There are commentators out there who are altogether more scientific about this than me and I thought I'd check out what they were saying.
Kiplinger's Personal Finance Jeffrey R. Kosnett wrote an article recently entitled 5 Ways to Manage Market Turbulence. Kosnett says:
- Don't panic
- Do rebalance
- Stick with stocks
- Stay liquid
- Buy Quality
The bankruptcy of a small European nation, says Kosnett, doesn't mean that the economies of most of the world will stop growing or that stocks will lose more money than they make in the long term.
Sure that's a bit simplistic and you should never hold onto a dog just because the markets are down. But good stocks are affected along with the bad ones and a dip/plunge/crash/correction or whatever you want to call it, offers great opportunities for investors.
That's because the nervous investor's crash is a contrarian's feeding frenzy. So the Greek mess for some is simply an opportunity.
Just think if you'd bought quality, but hard-hit stocks in March 2009. You wouldn't have even needed long horizons to realise what bargains you'd bought. The FTSE 100 has risen around 1,500 points since then.
Putting some rules such as Kosnett's in place in the good times will stand you in good stead in the bad. That might be that you rebalance every x number of months, regardless of what has happened in the market. It may be that you simply carry on drip feeding money into the markets. One of my best rules is to get into buying mode when doom and gloom fills the media.
Finally Dan Caplinger's article You Can Cash In on Volatility is interesting if you use or would consider using options as an investment vehicle. It's a story told elsewhere such as Reuters.