Staying calm is the best course of action

Monday was definitely a nail-biting kind of day. The Dow was down over 500 points and a lot of that loss came in the two hours the market was open. Panic was a word you heard on TV and saw on the Internet, and in all the newspapers. It was certainly hard not to feel anxious about the market, your retirement, your savings, and your future financial security. Many people wondered if it was time to move to all cash.

However, those who hung in there were rewarded in Tuesday's market which saw the Dow up 141 points or 1.3 percent and the S&P up 20.90 points or 1.75 percent. It just goes to show that you can't make important financial decisions based on emotions. You have to be able to tune out the fear-inducing headlines and stick with your long term plan. Remember, newspapers and magazines have to lead with the scare tactics or no one would buy the paper.

If you have a properly diversified portfolio, no action is required when the markets are falling -- except that you might want to buy more. If your portfolio has large and small company stocks, growth and value stocks, international exposure and alternative asset classes, you are all set. Sit back and watch what happens. There will be ups and there will be downs. You don't get the higher long term returns of stocks for free -- you have to be willing to soldier through the down days to capture the historically much higher performance of equities.

We don't know what the market will do today, tomorrow or the next day but we do know that in the long run, stocks are your best bet for beating inflation and earning a rate of return that will enable you to meet your long term financial goals.