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What the Drop in Oil, Gold and IBM Should Mean to the Average Investor

What the Drop in Oil, Gold and IBM Should Mean to the Average Investor

Oil’s recent drop has temporarily disrupted the markets, while the drop in gold now seems like a non-event for many of us. IBM has the distinction of being the only stock in the Dow Jones Industrial Average that did not go up in 2013 and looks like it will finish 2014 down substantially (over 10% in a year the market was up over 10%.)

Actually, prices are much lower at the pumps as are holiday gold jewelry prices –so that is good for most of us. IBM’s dividend hasn’t gone down and is at its all-time high. So, what do all the changes really mean to the average investor?

The stock market’s initial reaction to the drop in oil was also to drop. In the past, when oil jumped up, the market also dropped. This doesn’t seem too rational. I also heard that some major players and hedge funds are taking a bath having bet sharply against falling oil prices. I hope this doesn’t affect my sleep too much.

There is a lesson here. Nothing in investing is certain. Another lesson is that you shouldn’t put all your eggs in one basket. The average investor should not be a trader, speculator, second guesser, market timer or stock picker. The average investor is the guy or gal that is trying to create a semblance of financial security for themselves. What swingsand drops tell us is that with investing, nothing is certain. Because of this, a financial plan needs to be developed that will create a path to lead you to your goal and enable you to withstand the occasional sharp market changes. I have a number of suggestions for you to consider when you construct your plan.

  1. Decide on your long-term goal
  2. Consider your life expectancy and inflation
  3. Estimate spending needs when you no longer will be actively working
  4. Choose the type of investments that can get you there
  5. Don’t assume a greater risk than necessary to get you to your goals
  6. Within your investment categories, diversify
  7. Stick to your plan, watch your investments, but do not get overly concerned about the momentary ups and downs
  8. Have an annual meeting with a financial advisor to review your overall plan and investment performance
  9. Only make changes if there is a major change in your goals
  10. Market swings should only be a cause of concern if there is a flaw in your original plan or if there are major illogical and unusual changes in the markets
  11. Never lose sight of your original confidence in your plan to achieve your goals
  12. Never invest in anything you do not completely understand

Back to oil, gold and IBM. There is no rationale for the average investor to play around with oil, gold or individual stocks, and current drops are momentary when viewed through a 10 or 20 year prism, which many of us should be doing.

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