Today's throwback is to November of 1998. For context, since '98 was almost two decades ago, here's where the market was then (November 2, 1998) compared to now:
S&P 500 (then): 1,111.60
S&P 500 (now): 2,404.39
Nasdaq (then): 1,800.91
Nasdaq (now): 6,163.02
Dow Jones (then): 8,706.15
Dow Jones (now): 21,012.42
And here's a little snapshot of history for perspective:
It's now 2017, and although the news is different, Nancy's personal finance column remains relevant. Enjoy!
A few weeks ago, my parents celebrated their 50th wedding anniversary. Since my father was too shy to take his vows in church when he was 19 years old, my mother insisted on the full-blown affair this time around. She waited 50 years for this moment, and, by golly, nothing was going to steal her thunder. Not even a small thing like Hurricane Georges.
My parents live in Gulfport, just two miles from the beach. The big event occurred the weekend after Georges came through. They didn't even have power or phones until Wednesday after the storm. My brother, who lives in Alabama, called thinking everything would be on hold. No way!
Mother cranked into high gear to pull this off. The florists were struggling to get flowers. No problem A tree fell on the fellowship hall at the church. No problem.
My brother-in-law, who works for Mississippi Power Company, was working overtime. No problem. Hotel rooms for out-of-town family members suddenly dried up. Well, not literally. Actually, they were mostly flooded. Hey, no problem.
They exchanged their vows. We ate loads at the reception. And we visited with family members we hadn't seen in years. Later, we watched the video of the big event and declared, "It had been a good day." Talk about dark clouds and silver linings!
There are certainly dark clouds brewing over the stock market these days, but everyone doubts the appearance of a silver lining. While I prefer constantly upward movements in my stock portfolio, I know that's not realistic. But I also know there are things I can do when the market is down.
First, I need to look at my tax situation. We're heading into the last quarter of 1998, and it's time to get ready for April. When the market is up, it's hard to sell and take those gains. But maybe you bought a stock recently, only to have it take a dip. If you sell that stock before the end of the year, you can declare a loss on your taxes.
Suppose you still want to own that stock? You can buy it back, but you have to wait at least 30 days. Otherwise, the IRS will declare it a "wash sale" and disallow your loss. You also don't want to sell 100 shares of MCI WorldCom at 50, only to buy it back 30 days later at 55. That's not a wise move.
So, you have to look at the big picture. Is this downturn short-lived or will these conditions continue for several months? If your answer is "short-lived," stay put. Don't do anything and let those stocks bounce back. If you think we're looking at a long-term problem, you may want to head for the sidelines and take your tax break.
This is also a good time to rebalance your portfolio. We all know the wisdom of holding different types of securities. It's called asset allocation, and it's a way to weather those wild swings in the market. By having a combination of cash, stocks, bonds, and real estate, you will, hopefully, not suffer as much when the Dow heads on a roller coaster ride. The question is what combination is right for you.
You must consider your time horizon... How old are you? When will you start to draw on this money? What are you saving for? You must consider your risk tolerance... Did you go crazy when stocks started diving? Or are you comfortable with risk? You must consider your tax situation... Are you in a high tax bracket and need to make use of municipals and the capital gains law to ease your pain? Is your tax bracket lower, meaning municipals and annuities don't make sense?
Whatever the combination, everybody needs a mix of some sort. The problem is most people go to one extreme or the other. The last few years in the stock market have lured in many people. And many of those decided to put their entire portfolio in stocks because that's where the money was being made.
But when things started to go sour, they were hit the hardest. There are also those people who wouldn't dare consider stocks, and they missed out on those big returns of the last few years. Don't shun any one type of investment because it's not performing well at that time. Judge its returns and its risks over the long haul.
This may be a time for you to tone down your stock holdings if you are heavy in this area. And if you don't have much in stocks, this is actually a good time to look at building up this area. After all, there are more bargains out there now.
I've lived through many hurricanes in my lifetime. I know that as bleak as it may look before the storm comes through, the most beautiful day of the year occurs when the winds blow the clouds away. I think I see a little sun behind that dark cloud
--Nancy Lottridge Anderson, Ph.D., CFA, Mississippi Business Journal, November 2-8, 1998