Ask Matt: Should I be ready to bail on stocks?
Q: Should I be ready to bail on stocks?
A: The markets don't look great. The Dow Jones industrial average Thursday sank 358 points - the biggest one-day point drop since Nov. 9, 2011. The Standard & Poor's 500 is down 4.6% from its all-time high.
The pain goes beyond numbers. Household name stocks that are the market to many beginning investors, like Apple (AAPL) and Disney (DIS), are struggling recently.
Even some new and promising tech stocks, like Twitter, are suffering. Twitter shares dropped below the price the stock was sold to the public for. Investors fret the Federal Reserve may push up short-term interest rates, which could cool the economy. China's economic gusto is fading.
It looks bad - but doesn't mean you should sell. The fact you're worried indicates it is overdue to examine your portfolio. If you've let a single hot stock overrun your portfolio, it's a good time to put it back in the proper proportion of your holdings.
Make sure you have an adequate rainy day fund that will cover at least three to six months of expenses.
Make sure you're diversified not just with U.S. stocks, but also bonds and foreign stocks, which have already been beat down.
None of these things are new. It's just that during bull markets, investors often trade speculation for prudence.
Paste BN markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.