One of the things that is hard for any investor to watch is increased market volatility and severe dips in the overall value of their portfolio. I'm no different than anybody else when watching the market tank and worrying about the value of my holdings. Currently the market is experiencing a decline due to a number of factors. China is devaluing the Yuan causing worry about the growth rate in the second largest market and potentially triggering a currency war. The FED is talking about raising rates, with some believing that it will now more likely happen in December instead of September due to the market conditions. Margin debt is at all time highs which typically occurs prior to crashes as people over leverage themselves to buy stocks that they feel can only go up. The United States is sitting on a debt bubble, not just the nation themselves, but also through student loans and retirement savings issues. I could go on and on, but I think I've created a fairly bleak picture based on the headlines of the moment.
What does this all mean to me as an investor? Nothing, in fact I'm rather excited about the prospects of a market correction. We're already down from highs in the 18,000 to close to testing 16,500 on the DOW and for those of us 30 somethings that have long term prospects I couldn't be happier. This market has been running on kool aid that the FED has provided along with central banks the world over and I think it's finally time that they are out of bullets to prop up this market. It's been a fun ride, but it's time that it corrects itself. People have lost fear and have been past the point of irrational exuberance for a while now. So what's my plan now that the market volatility has returned? Well first and foremost I do not plan to sell any stocks that are my core DGI holdings, this seems like a no brainer for us DGI folks, but it has been shown time and time again that people lose their ability to think long term when they are faced with the pain of a declining asset and market.
What I do plan to do is prepare my elephant gun to take on as many new stock opportunities as I can in the coming months or years. This alludes to what I mentioned in a prior post about if I knew what I know now in 2009, my portfolio would have been much larger and throwing off a lot more dividends. So what I plan on doing is throwing the savings into overdrive with minimal stock purchases in the near term. I smell a bargain coming as people start to become less confident in this market and when they start to flee with the blood in the streets is when I plan on starting to pounce. We've shed almost 1700 points from the all time high of 18,351.36 and I don't know if there's anything that the FED or other central banks can do to stop the bleeding, and I'm OK with that. Even though I've bled off almost $20,000 in my portfolio, mostly due to oil stocks, I'm ok with the fact that my dividends will go farther now in purchasing more shares to throw off an ever increasing passive income stream. I'm sure we'll probably see some positive days in the coming weeks and maybe even a nice bounce up for a bit, but I have a feeling more pain than pleasure is coming and I'm preparing for the opportunities ahead. This doesn't mean I'm not currently investing as I still have my 401k investing biweekly, but it does mean that I'm holding off on my personal picks as I see how things play out. I'm not trying to time the market, but rather getting more cautious as things take form.
What about you, are you changing your strategies with the increased volatility?