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Investing For Dummies®, 5th Edition by Eric Tyson, MBA

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Chapter 22. Ten Tips for Investing in a Down Market

In This Chapter

  • Keeping a level head amid the doom and gloom

  • Identifying and fixing flaws in your portfolio

  • Understanding why value stocks have less downside risk

Unless there's a lot of other breaking news, sharp drops in the stock market make headlines — stock market gyrations are great media fodder. Every day the market environment is different, and new stocks are plunging and rising. And now, with more individuals holding stocks through company and personal retirement plans, the media has a captive, concerned audience. In this chapter, I discuss how to maximize your chances for investing success when stocks take a turn for the worse.

Don't Panic

No one enjoys turning on his car radio, clicking his television set on, or logging on to the Internet and getting this news: "Stocks plunge. The Dow Jones Industrial plummeted 400 points today." Don't panic — it's just one day's events.

Just because a home burned to the ground recently in your town and the news is being broadcast over all the local media, you probably wouldn't start living on the street out of fear of being at home during a fire. But you might take some sensible precautions, such as installing smoke alarms and repairing any malfunctioning appliances that might cause a fire, to ensure that your home isn't likely to become the next fire department statistic. Likewise, don't shun stocks, which produce terrific long-term returns, just because of the down periods. As I discuss ...

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