Dealing with downturns

The stock market has always given investors reason to worry. The markets fretted over the prelude to the gulf war in 1990, over inflation fears in 1994, and over a global economic and liquidity crisis in 1998.

More recently, 2007 brought a deep recession triggered the collapse of the housing market and the failure of major financial institutions, followed by a sharp market decline in November of 2007.

But no matter how many times the stock market has kept investors on edge - no matter how many market gurus have called for the beginning of the end for stock market valuations - the leading benchmarks have eventually managed to rebound and go on to new highs.

Indeed, there will be periods when the stock market doesn't recover for an extended period of time. Not just one or two years but many years. However, while past performance is no guarantee of future results, history has shown that if you keep a long-term perspective, your patience will be rewarded.

How do you stick with stocks when all seems uncertain?

• Be unemotional about short-term market phenomenon. There are going to be times when certain events, such as a negative economic report or a major political uncertainty, will rock the market. Don't over-react. Stay the course. All losses are simply paper losses until you sell. If you have time and patience to ride out fluctuations - and you should as a long-term investor - you'll be in a better position to enjoy the potential gains available from stocks.

• See opportunity in negativity. It's difficult to be optimistic about stocks when other investors are running for

the exit. But those who have jumped into the market during periods of uncertainty have been rewarded over time. So look at market downturns as investment opportunities, instead of opportunities to run for cover. Buying on dips will also help to lower your average cost, which may boost your total return over time.

• Make sure you are adequately diversified. When you invest in a handful of securities, the performance of one security can have a dramatic impact on the performance of your overall portfolio. By spreading assets among numerous securities - and many types of issues, such as stocks, bonds, mutual funds, etc. - you may reduce risk significantly.

• Don't try to be a market timer. Some investors think they can get out of the market when it seems poised for a correction, and jump back in when the market appears ready to rally. Forget this strategy. It doesn't work. No one, not even the so-called experts, have been able to consistently time the market's ebb and flow. In fact, market timing can be hazardous to your financial health. Reason: It can leave you out of the market during major market rallies and cause you to jump back in right before a significant correction.

• Rely on the expertise of a financial professional. No one likes to feel alone when the going gets tough. So why try to make tough decisions on your own regarding your portfolio when the market starts to rattle? Call on your Financial Consultant for sound financial advice and planning. A professional's expertise and insight could be the difference in helping you achieve your long-term financial goals.

Chris Barone

Branch Manager

Senior Vice President

Financial Consultant

D.A. Davidson Companies

Coeur d'Alene, ID 83835

208-667-1212

This article was authored by a third party. This article does not necessarily reflect the expertise of D.A. Davidson & Co., Member SIPC.