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MONEY

5 tips for panicked investors to weather market storm

Adam Shell
USA TODAY
Panicking isn't a good way to deal with your angst.

A 1,000-point drop last week for the Dow. Another 1,000-point plunge in early trading Monday. As an investor, it's hard not to get spooked by those wild swings to the downside.

But panicking isn't a good way to deal with your angst. The best way to cope with big down days in the stock market is to keep your cool. Remain calm. Don't let your emotions run wild.

In times like these, perspective is in order.

The Dow and the rest of the major U.S. stock indexes are down more than 10% from their record highs. But investors need to remember that corrections are part of life investing in the stock market.

Corrections normally occur every 12 to 16 months. This big drop seems scarier because the market hasn't fallen this much in four years.

Here are some tips to help calm your mind — and get you through the tumult.

No. 1: Keep your perspective. After a crazy ride, the Dow trimmed its losses Monday to 588 points, or 3.6%. On Black Monday in October 1987, the Dow fell more than 22% in a single day. The takeaway: The recent stock declines are big but not crashes, when viewed on a percentage basis.

No. 2: Think long term. Heading into the week, the broad U.S. stock market was still up almost 200% since March 2009. So you have to take the good with the bad. Stocks don't just go up. They go down, too. That's why it makes sense to think long term. Sure, your 401(k) might have taken a hit, but if retirement is 10, 15 even 30 years away, why worry about a one-week drop or one-day plunge? Plus, markets tend to bounce back eventually.

No. 3: Stay diversified. If you own stocks, bonds and cash, you are in a much better position. Your cash balance won't go down today. And your bonds — especially if you owned U.S. Treasuries — probably rallied as safe-haven assets lured buyers back in. In short, your stock losses will be offset by other parts of your portfolio.

No. 4: Sell a little if you must. If you are nervous and think it is going to be a bear market (or an eventual dive of 20% or more), then take some money off the table. But don't bail out of stocks completely, because if you are wrong, you will miss out on any rebound. And you might not get into the market, fearing more downside.

No. 5: Quit watching. Turn off the TV if seeing a sea of red ink on Wall Street sends you into a panic attack.

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