Friday, August 21, 2015

What to do When the Stock Market Falls 1000 Points

The U.S. stock market fell dramatically this week. The S&P 500 is now officially down 4.3% for the year. However, bond prices are up rather dramatically and have dampened some of that sting for those individuals who always keep a balance of stocks and bonds.

What is a person to do that maintains a 60% stock, 40% bond portfolio? Check your ratios! Go to your accounts this weekend, run some numbers, and prepare to rebalance things a bit. On a portfolio that is supposed to be 60% stocks and 40% bonds, you may find that you are closer to 50/50. What does maintaining your ratios force you to do after a week like we've had? Well, most likely you'll be selling some of your bond positions (which are expensive anyway due to this week's rally in prices) and buying more on the equity side (which are cheap due to the 1000 point loss we've seen recently).

This is not the time to let your portfolio get "all the eggs in one basket." Check your ratios and rebalance if necessary.

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