Prepared for Another Market Meltdown? What should be your Investment Strategy?

Soon after every panic selloff, Wall Street becomes a topic for debate everywhere you peep. So, it was not different when stocks had the worst weekly crash in years. If you are among those who suffered losses, you must be baffled as of what is going to happen next and what you should do to protect your investments from losing more value? In this post I will try to guide you on how you can effectively deal with such market corrections. But first let’s see what is really triggering another market meltdown?

US Credit Rating Drama Continues to Unfold

Well, one thing is for sure that market corrections are so brutal that even sophisticated investors cannot escape the mayhem. The Dow Jones Industrial average lost 10% after the S&P downgraded US Debt to AA+ from AAA. Now, some call it a politically influenced move and a probe has already started to reveal the real thing. Even President Obama in his public address on the issue stated it quite confidently that US has always been AAA and that they will continue to remain so no matter what any rating agency thinks about it. S&P president has been quite open on the issue as he clearly stated that they have downgraded US as they feel there is much more risky for their clients to invest in US that it was earlier, mainly due to rising debt which seems uncontrollable despite budget cuts.

Being an investor strangled by this mess you certainly do not care who is right and who is blind; you have lost money and only you can do something about it. So, I suggest that you get eagle-eyed than being afraid in such market situations.

Why are the Global Stock Markets Falling?

Markets are falling and it’s not only the rating downgrade that triggering the fall, problems across Europe and US are raising concerns. When you look at Europe it’s a complete dysfunctional unit with Greece, Portugal, Spain, Ireland and Italy. Even Germany and France a feeling the heat of a dysfunctional eurozone and they might eventually protect themselves than bailing out the rest before a complete collapse.

One might say that the problems in US are way to too simple to handle than those being experienced by European countries, but the increasing possibility of the economy slipping back into recession is simply daunting. The economy grew below 2% in the first half and corporate earnings outlook is soft for the second half. Such expectations restrict capital investments and thus slow down growth.

What should be your Investment Strategy Right Now?

Now, this is not the time to change the way you invest. When market get volatile its very common to press the panic button and sell out. But if you are a long term investor and do not have heavy leverage positions like many day traders than you should see such times as good buying opportunities. After all a dip is the best time to invest but you should not fear the volatility. Don’t try to catch the bottom; make sure you invest gradually when valuations are beaten down. Never make the mistake of being fully invested, keep some cash at hand to take advantage of market volatility, and this could help you in dollar cost averaging as well.

One more important thing; don’t take it as an investment tip, but this is what I would do amid current market and economic scenario. Invest in blue chip stocks that pay consistent and high dividends. When you have the cushion of high dividend yields, market volatility will not give you sleepless nights.

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