by Silicon Valley Blogger on 2008-08-19 23

Some thoughts on how to manage your investments through any stock market climate.

So far, the prediction that the stock market wasnt going to close on a good note this year seems to be unfolding as expected. Remember the saying which suggests that however January turns out, so shall the rest of the year? Well just as expected, our stock portfolio (along with the investment portfolios of countless investors out there) is suffering through the rough patch brought about by the credit and subprime lending crisis .

But before we all bemoan the decline of our net worth. Id like to offer some words of encouragement and supply you with information that should alleviate some of this worry:

Investment Management Tips For An Iffy Stock Market

#1 Are you going to act? Then go against the crowd.

Should you sell, buy or trade? If I had the extra money to invest, I would dollar cost average or invest in a lump sum at these lower market levels.

Were often told that the best time to buy into the stock market is while its languishing. If youre wondering when to jump into the market, now may be a reasonable time, although if youre nervous about committing all your cash into the market right now, you can do so gradually, using dollar cost averaging methods or you can stay cautious by reviewing these ways to invest defensively with new monies.

If you dont have any additional savings to make investment purchases, then hang on. By reading the rest of this article, youll see why staying put in this market (though against our natural inclinations) may be a sensible strategy. Find out more about how investing in down markets can be a good move.

#2 Do nothing or at least, dont overreact.

My spouse is the type of person who feels he needs to do something when the market moves. We discuss our options then ultimately end up doing nothing much. This is because were already pretty much diversified according to the asset allocation parameters weve adopted for ourselves. I dont feel we need to change the rules in the middle of the game. If we did that, were just cheating ourselves, while shifting our asset allocation as a reaction to market developments.

The only shifting we should be doing needs to be driven by regular investment portfolio reviews and rebalancing efforts that we take to keep our asset allocation stable, regardless of what the market is doing.

#3 Wait it out. Do you have a long investment time horizon?

Too much issue is made of short-term returns, and its easy to feel depressed about the returns were seeing over the last few years. But when you look at the big picture, those losses arent as gargantuan as they seem.

This data table from T. Rowe Price illustrates how stock market returns smooth out over time and how time in the market reduces variability in investment returns. That is, the longer you stay in the market the less likely it is for you to receive extreme rates of return. More on this on my discussion about long term investing. Here are some real numbers to support this reality:

Historical Stock Market Performance 1926-2006