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Managing Volatility
Sunday, August 1, 1999



Long Terms View
First, put market volatility in perspective. Swings in the stock market over a few months or even a few years should not affect a long-term investment strategy. Historically, investing over the long-term has tended to smooth out the bumpy rides that have occurred over the shorter periods of time.

It has often been said that two emotions, fear and greed, are what determine much of the trading in the market. When stocks rise in a bull market, many investors may develop a false sense of security that nothing can stop this continued upward trend. They mistakenly believe that large gains made over a short period of time can be projected into the future indefinitely.

The "flip-side" of the false optimism is the disappointment that may set in when the market drops sharply in one day. In a bear market, many investors may panic as they imagine their nest eggs vanish before their eyes. Some may even sell when the market has gone down on the fear that it could go even lower. In either of these cases, it's important to keep your long-term perspective in mind.

Stay Focussed

A steady course, somewhere between the extremes of bull market euphoria and bear market despair is the approach that long-term investors take toward investment, always keeping their future financial objectives in mind. As a long-term investor, don't let yourself get caught up in predictions of what will happen tomorrow or next month. Even stock market professionals cannot always accurately predict the future of the market. In addition, be sure you understand what reports in the newspapers and on elevision mean before reacting to them. Your financial advisor can provide insight and play a valuable role in helping your maintain your focus on your overall investment strategy.

The key to keeping short-term volatility in perspective is to review your overall asset allocation strategy periodically, including your long-term saving goals. A proper asset allocation strategy, which takes into account your time horizon and risk tolerance, should factor in periods of market volatility. Bear markets and bull markets are part of the overall history of the markets. If you have a plan in place and learn to expect both kinds of markets, you can take the good and the bad in stride and know that you are indeed an investor for the long terms.

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