The Upside of a Down Market

The recent market fluctuations have many investors running for the exits. Those who are selling in a panic, however, are missing out on a golden opportunity. How so? One only needs to turn to another dose of wisdom from Warren Buffett to find the answer.

"If you expect to be a net saver during the next 5 years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

Investing in a falling market is when savvy investors can really pad their long term returns. Trying to time the market, however, is a losing game.

So how can you stay sane in a tough market and take advantage of it when investments are on sale? Simply stick with these sound investing principles:

1. Take advantage of dollar cost averaging by investing a set amount on a regular basis. You'll automatically buy more shares when prices are low and fewer shares when prices are high.
2. Diversify through asset allocation. Assets classes act differently. While large cap stocks are going up, small caps may lag behind. By using asset allocation to diversify across a number of different asset classes you will minimize the negative impact a drop in any one asset class has on your savings.
3. Regularly rebalance your portfolio. Besides keeping your portfolio in line with your investing goals, rebalancing will also automatically ensure that you buy low and sell high.
   

Following the above tried and true principles, as we do here at Blue Ocean Portfolios using low cost ETFs and index funds, will help you take advantage of the opportunity market volatility creates.

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