Investing in an unstable economy
The last two days have proven to be historic for America. First, on Monday 8th August 9, 2011, the DOW drops 643 points in one day following the Standard & Poor’s downgrade of its United States credit rating from “AAA” to “AA+”, and the NASDAQ and S&P indexes morphed a similar pattern, dropping 6.9% and 6.66% respectively. Consumer confidence remains low and the nation’s job market is slow to show signs of recovery.
Later on Tuesday, the Fed’s Open Market Committee released a statement that acknowledged America’s economic growth was slower than anticipated and that we would continue with extraordinary low interest rates for the next two years. This news resulted in a stock market rally, delivering gains that have only been witnessed a few times before now, ending with the Dow Jones Industrial Average gaining 430 points.
So what do we all make of this and how can we be confident about our investing in uncertain times?
LouAnn Lofton writes in her latest book “Warren Buffet Invests like a Girl” that women typically conduct more research than men when making investment choices. While men are confident in their actions, they run the risk of being susceptible to over confidence. Trading more frequently (men trade 45 percent more often than women do) and with less research, results in lower returns, increased costs and higher capital gains tax.
“You’ll have to read her book to see the criteria she used, but I’d say I probably plead guilty.” — Warren Buffett
So do your research, take your time and try to avoid rash decisions in an unstable economy.