Don’t abandon ship yet — one day does not make a trend

Time and time again I have emphasized that diversification is a key ingredient in the recipe for long-term investment success. I have also made readers aware that the current uptrend in the financial markets is now more than six years old. In other words, it’s one of the longer bull markets in our nation’s financial history.

To go six years without a 10 percent correction is quite remarkable. To a certain degree, the investment world is like a living being in that it periodically inhales and exhales. So, after six years of exhaling, seeing the markets stop and take a breath shouldn’t be a surprise — or cause for alarm — for anyone.

There’s no question that the world is facing some serious issues. Some of them so serious, in fact, that they could potentially light the fuse and ignite global warfare.

Here at home, even though most investors have seen their account values appreciate over the past six years, I sense that many feel the economy still hasn’t totally recovered from the recession.

In a recent column I made readers aware that a dollar dominated world currency is currently being challenged. Although the effort is being led by China, even some of our close allies have lent support, including France, Germany and the United Kingdom.

I won’t go into the ramifications of the U.S. dollar losing its status as the world’s reserve currency. Suffice it to say that it’s quite worrisome. That being said, however, there has always been something to worry about.

There’s an old saying that successful investors must be able to climb the wall of worry. I have often referred to it as needing an iron stomach. Considering the many serious issues around the world, I think we can add “nerves of steel” to that list of requirements.

Remember, bad news sells. When you turn on the TV or radio, the lead story is seldom about some great philanthropic event. More often than not, it’s about a tragedy, crime or some controversial political issue.

I noticed that immediately after the markets plunged on April 17, the Internet and my email were flooded with disturbing solicitations that preyed upon fear. I personally was warned of “the coming economic collapse,” to “cash out now and buy gold,” and to “buy this report to avoid doomsday.”

Stating the obvious, nobody has a crystal ball. As a financial adviser, when I work with a client to develop a diversified well-balanced portfolio, I design it with them for the long term.

Of course there are periodic reviews that may result in the plan being modified or tweaked. It’s essential to follow that course of action rather than eventually hitting the panic button and changing everything.

Unfortunately, I’ve seen that happen. People abandoning their strategy and letting emotions take over. Emotions are a dangerous thing for investors. They often lead to impulsive decisions that seldom work out. Long-term investors understand that setbacks occur and don’t let emotions take over.

A lot of money is made off of a person’s fear. I’m sure that many people responded to the Internet and email warnings after the market drop on April 17. The fear mongers may have cashed in, but abandoning ship rarely works out well for long-term investors.