Coping in a Shaky Market - Jump Out the Window or Hang Tough?

The stock market is giving fits to many investors. Portfolio values are shrinking and the prospect of a sustained market upside anytime soon seems unlikely. Meanwhile, food, energy and medical costs continue to climb, putting pressure on many household budgets. The hope that stocks would provide a financial cushion for Americans, particularly retirees, seems to be fading.

So what are long-term investors to do? If you believe that the U.S. economy is on the verge of a collapse, it would be prudent to sell all or part of your stock holdings and stash the the proceeds. But if you believe, as I (RAH) do, that the U.S. economy is inherently resilient and will resume its long-term growth in the near future, you would hold your stocks and wait out the current rough patch. I'm making that bet.

Currently, I am holding my long-term positions, nibbling at income exchange-traded funds (I am retired and want to supplement my income) and trading cyclical semiconductor stocks such as Kulicke & Soffa (KLIC). I am watching the regional banks because at some point some will be great buys.

My portfolio is down in value from last year, but I can live with the paper decline. I am not chasing the current "hot" stocks and sectors trying to make up my paper losses. I've learned over the years that my portfolio regularly fluctuates in value, but it will be okay if I follow prudent investing principles like don't pay too much for a stock, minimize fees and expenses, avoid fad stocks, don't follow the crowd and be patient.

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Posted May 8, 2008.