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August 06, 2008

Investing with the bears

The stock market is officially in a bear market, meaning average losses are now 20 percent off their recent high. For investors, both big and small, the biggest question is whether to stay or go. For people in the stock market, should they continue to hold stocks for should they sell?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, this is the question of the day, and we have been here many times before. That's one good reason for looking at this. We do know that the stock market does come back. It won't stay down. It will go back. The question of course is when? So what is the average investor supposed to do? Well, there are some rules of thumb here. One rule of thumb says that if you are going to need that money that you have in the stock market within a reasonably short period of time - three, four, five years; say you are close to retirement - you are probably better off moving it out of the stock market and not taking your chances that the market could go down even more. Now, obviously what you give up there is the chance that just as you move your money, the market starts to go up. So certainly there could be a downside to that strategy. On the other hand, if you are a young investor and the money you are putting in the stock market is for use 10, 15, 20 maybe 30 years down the road, the standard advice is to stay pat. In fact, maybe even increase and accelerate your purchases of stocks if you feel like this is a good buying opportunity. So it really depends on your time perspective as well as your tolerance for risk."

Posted by Dave at August 6, 2008 08:00 AM