Bad Quarter For Stocks Could Be Good For You
Unless you're Elin Nordegren, you probably woke up poorer today than you were three months ago. (The British tabloid The Sun reported that Tiger Woods will pay his soon-to-be ex-wife a whopping $750 million as part of their divorce settlement.)
The rest of us must console ourselves by facing the grim reality of second quarter results: the Dow was down 10% to 9774, its first quarterly decline since Q1 of 2009 -- the period during which the index fell to its bear market low. The S&P 500 lost 11.9% to 1030 and is now 15% BELOW its April 23rd high. The NASDAQ tumbled 12% to 2109. Bond and gold investors were the winners on the quarter: 10-year treasuries gained nearly 6% and gold was up 12%.
If there is one silver lining to the market's tumble is that it coincides nicely with the calendar. Many retirement plans offer automatic rebalancing, which puts some of your investment decision-making on auto-pilot. Let's say that you had started the quarter with an allocation of 60% stocks and 40% bonds. Due to the market action, your current allocation may have shifted to 55% stocks and 45% bonds. Rebalancing would force you to sell 5% of your bond position and use that to add 5% to your stock position. In other words, you would be selling high and buying low. If your plan doesn't offer automatic rebalancing, you can do it yourself, but only on a quarterly basis--more than that is not necessary.
