4) Remember You Are in the Market for the Long Term
"The most important thing when the market drops is not to panic and remember that you invested for the long term," says Martin Cabrera, CEO of Cabrera Capital Markets Inc. Cabrera's firm, based in Chicago, handles accounts from cities, states and larger corporations. "Remember that while some of the financials have been significantly beaten up, they will recover at some point as the subprime crisis goes into the rearview mirror." Mr. Cabrera suggests there are good values available in the municipal bond market, although he recommends vigorously researching the field to find stable municipalities before investing. He also warns that this is not a good time for retail investors to be day trading or trading on short-term investments. "The life will come back into the market, you just have to wait for it and don't second-guess yourself," he says.
5) Foreign Bonds, Covered Calls, and Preferred Stock
"Three things I'm recommending right now are international bonds, covered calls and preferred stock," says Luis Maizel, senior managing director for the San Diego-based LM Capital Group LLC. The company plays an advisory role for some of the largest public funds in the nation, including CalPERS, and it also services private investors. "I'm encouraging our investors to diversify into bonds, particularly international currency-related bonds because I believe the U.S. dollar will continue to be in trouble." Covered calls are an intriguing part of the huge option market that operates as a giant shadow to the stock market and the NASDAQ. Buyers purchase a stock and then sell the stock to a buyer who takes possession of the stock at a predesignated time in the future at a lower price. Buyers must pay a fee for purchasing the stock. "Th e buyers of the stock are the gamblers, but you don't really gamble much if you are the seller," Mr. Maizel says. For sellers, the maneuver can be a hedge against the unknown aspects of a down market, he adds. At the same time, institutions are finding that selling preferred stock, which is like a hybrid between a stock and a bond, is an attractive way to raise capital. "Some are paying as much as 8 percent on their preferred stock, making it a safer and lucrative way to protect your investments in volatile markets," Mr. Maizel says.
6) Rebalance Your Portfolio
If you can tolerate a moderate level of risk, Lloyd Kurtz, a senior portfolio manager at Palo Alto-based Nelson Capital, believes the best strategy, but also the hardest to do, is to rebalance your portfolio back to your original asset allocation targets. "For example, if you have decided on a policy of owning 70 percent stocks and 30 percent bonds, chances are the recent market activity left you underweighted in stocks and overweighted in bonds," says Mr. Kurtz. "To stay true to your targets, you should add to your stock position and reduce your bond position." This rebalancing has historically been helpful for both performance and risk management but can be tough psychologically, he says. "It requires that you buy things that haven't been working and sell things that have. People are oft en reluctant to do that." Reluctance, anxiety, and frustration are the hallmarks of turbulent markets, and it may be a while before the captain turns off the "fasten your seat belts" sign, but hopefully these tips will allow you to relax a little and seize the opportunities that do emerge.
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