Garrett’s revised strategy—and those of hordes of individual investors—came about as equity markets were being hammered, largely dented by a combination of recent bad economic news: From Aug. 5 through Aug. 26, the Dow Jones industrial average dropped 1.40%, the Nasdaq composite index fell 2%, and the Standard & Poor’s 500 slid 1.88%, according to SNL Financial L.C., a Charlottesville, Virginia, financial services research firm. But gigantic swings of several hundred points in a short time have become the norm.
Wall Street has felt shocks from heightened fears about the sour economy, the possibility of a double-dip recession, and worries over the European debt crisis. Moreover, on Aug. 5 Standard & Poor’s slashed the United States’ credit rating to AA+ from AAA. Also in early August, the Federal Reserve pledged to keep interest rates super low for two more years making investors scratch their heads over the long-term impact of those events.
Well, expect more volatility. The market will continue to seesaw as a congressional super committee deliberates over the best way to shrink the federal deficit and the 2012 presidential contest heats up. Despite the unpredictable climate, a group of top-flight money managers says there are still some attractive places to invest your money—that’s particularly true for long-term investors willing to ride out some short-term bumps.
Stay calm and focus on long-term goals. Isaac H. Green, CEO at Piedmont Investment Advisors, says Garrett’s portfolio shifts were based on his risk tolerance and need for safety. He believes investors must realize in a turbulent market that short-term risks are magnified by market volatility. If a person has a long-term horizon, they can actually afford to not pay too much attention to market turbulence.
William H. Young, president and COO of Buford, Dickson, Harper & Sparrow Inc., a St. Louis-based portfolio management and financial services firm, agrees, urging investors not to panic: “Staying calm will keep investors from making knee-jerk decisions that they will regret when the market settles down.”
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