Title: Basic Tips Date: 1/1/03 Pundits call this a difficult market; which in plain English means a down market. The big question is “what does this mean for you?” For most investors it simply means cautiously stay the course. First, if your portfolio causes you concern on a daily basis you have too much risk; you should reduce your exposure. Life is too short to worry excessively about investments. As we all know, there are plenty of other things to worry excessively about. Secondly, always look at investments over the long term. Do not fret every zig and zag in the market. And please do not study markets on a daily basis; that’s my job. Remember, if you need the money in the next two years stay in money market funds. Stocks are not stable enough for any term under two years. Let’s discuss diversification. Having 70% of your net worth in equities and 30% in bonds is not full diversification. 40% in real estate markets, 40% in diversified equities, 20% in fixed income is more like it. Think about your entire net worth. If only 40% is in equities and they decline another 20%, your net worth is only off 8%. In today’s environment your real estate would have increased approximately 10% cutting your overall loss to only 4%.; hardly enough to start popping Prozac. Preparing an annual personal balance sheet is a good exercise for any investor. (Do not include wasting assets like furniture and cars. Also, using estimates for home values is fine for this type of accounting) List assets and liabilities and determine you net worth. Then evaluate your exposure to different assets classes. This will help you focus on your overall risk and facilitate your investing decisions. Real diversification will allow you to weather bad markets in any asset class. Marty Gallagher <- Back Home