Today the stock market broke a five day losing streak. When speaking with my colleagues and friends about personal finance, I hear and see a lot of fear. People are getting scared that we are facing a very long economic recession and an extended bear market. In fact, one of my colleagues today went as far as predicting a depression... He was so glum I had only one question for him: "seriously?!"
My opinion is that we are definitely facing an extended economic downturn. I think that the real estate market is not going to start recovering before the end of 2009. I also think that we are already in the midst of a recession, and yes, we will see the stock market continue to decline and unemployment rise. However, a depression? I am not looking for a place in the soup kitchen line quite yet.
We are holding firm to our stock positions. Moreover, I have decided to slowly move money from our money market account and into the stock market over the next few months. In fact, after cancelling a stock purchase order before the market opened two days ago, I reinstated that order the next morning, following the Fed Fund Rate cut.
Yes, volatility will continue, and it is likely that we will continue to see the equity markets decline for a while, but if the recent declines are enough to scare you into selling your stocks and mutual funds, you should probably not be investing in the market in the first place. When the going gets tough the right strategy is to stick to your guns, and keep a well diversified portfolio. Panic and sell at your peril.