Fresh off Wall Street's worst week in four years – one that saw the Dow Jones industrial average lose 10 percent of its value and the Standard & Poor's 500 index slip below the magical 2,000 barrier – I have two words of advice for gun-shy investors.
'We're starting to get some calls, as should be expected,' says Erik Jensen, president and founder of Jensen Wealth Advisors in Palm Desert, California, and a registered principal with LPL Financial. 'We empathize with them; nobody likes seeing drops like last week. However, we recommend they keep a long-term perspective, understanding that corrections are the norm, not a calamity.'
Sure, last week may have felt like a calamity if you were watching your portfolio shrink by the hour. But there were tell-tale signs – after riding an extraordinary bullish market since 2009, Wall Street had been essentially trading sideways until this month. Then the market's softening became a full-blown meltdown Thursday and Friday.
Wall Street's darling stocks – the tech sector – were among the hardest hit. Netflix (ticker: NFLX) lost nearly 16 percent; Apple (AAPL) and Facebook (FB) were both down nearly 9 percent and Microsoft Corp. (MSFT) fell 7.7 percent.
'While investors should avoid panicking over short-term movements in the value of their long-term investments, the recent volatility ought to serve as a wake-up call to re-examine risk and stress-test your portfolio against the possibility of further declines,' says Kurt Rossi, president of Independent Wealth Management in Wall, New Jersey. 'Be especially careful if you were like many investors that were pushed into taking on higher risk investments due to the low-yield environment. Consider reviewing the compatibility of your portfolio and your financial planning goals, making changes to your investments if the two are out of alignment.'