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4 Ways You Must Take Action Today

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How's your portfolio looking these days?

If you still haven't been willing to peek, you're not alone. Dozens of people I've talked to in the last few weeks have told me that they're not even going to look at their long-term holdings until the end of the year, at the earliest.

When we fear the worst, it seems safer not to confront it directly. And if your retirement is still a long way off, it may seem like there's no need to confront it at all right now.

After all, the market will bounce eventually, right?

Yes, but...
If history is any guide -- and when it comes to markets, it usually is -- the stock market will recover over time. It may take several years, and it may get even worse before it gets better, but eventually, America's mighty engine of economic growth will reassert itself. When that happens, investors will be willing to pay up to buy some of that growth, and stock prices will start to rise in a sustainable way.

Meanwhile, here we are down in the dumps. And if you've been holding stocks during the ride down, you've probably taken some significant losses. Things might even be as bad as you fear.

But the recent market fall has created pain and opportunity in equal measure. There are things you can do right now -- yes, even with your battered portfolio -- to help you limit further damage while setting you up for significant gains later.

If you do it right, you might even see some gains soon.

Action steps for right now
Suck up that fear and crack open those financial statements, Fool. Right now -- when everything's cheap -- is a fine time to sell what you don't need, and buy more of what you do. The sooner you get your portfolio focused on your long-term goals, the sooner it'll start getting you closer to meeting them. Here's what to do:

1. Get a plan.
I won't rehash the case for asset allocation here, except to say that its benefits are significant and scientifically proven. Get a good allocation template -- your 401(k) provider's website can probably generate a decent one, or check out the excellent models provided by the Fool's Rule Your Retirement service -- and get ready to take a hard look at all of your holdings.

2. Move into good investments. The choices available in your 401(k) should have all of the basic allocation bases covered. If you're working with a taxable account or an IRA, your choices are much broader. Use the Fool's CAPS screener to create a list of stocks to investigate. It's easy, especially when you use the preset screens to find growth, value, or dividend stocks by market cap. I just ran a quick screen for highly rated large caps with hefty dividends and came up with a long list, including these:

Stock

CAPS rating

Dividend yield as of 10/21

GlaxoSmithKline (NYSE: GSK  )

*****

5.5%

PepsiCo (NYSE: PEP  )

*****

3.1%

Paychex (Nasdaq: PAYX  )

*****

4.7%

Manulife (NYSE: MFC  )

*****

4.4%

Titanium Metals (NYSE: TIE  )

*****

3.4%

Vimpel Communications (NYSE: VIP  )

*****

3.8%

ABB (NYSE: ABB  )

*****

3%

Source: Motley Fool CAPS, Yahoo! Finance.

Are any of these worth buying? I don't know yet. Reinvested dividends are a great way to lock in some growth during rough times, but dividends often get cut during recessions. But there are some strong candidates for further inquiry here.

3. Keep investing.
It's especially important to keep contributing to your 401(k) and IRAs now, if you can afford it. Those who buy great stocks while the market is down will see big gains in coming years. I want my share of those big gains, and I'm sure you do, too.

4. Stay informed.
Whether you're looking for asset allocation guidance, help choosing the best options in your 401(k), strategies for getting through the downturn, or just some reassurance that you're doing the right things, the Fool's Rule Your Retirement newsletter service is the best way to stay on top of the retirement investing game. It's a complete source of guidance for retirement investors in these difficult times. A free pass gives you full access for 30 days.

Fool contributor John Rosevear has no position in the stocks mentioned. Paychex and GlaxoSmithKline are Motley Fool Income Investor selections. Paychex is a Motley Fool Inside Value pick. Titanium Metals is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (16)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 22, 2008, at 7:50 PM, bbldundee wrote:

    Have to tell you I get a little "miffed" continuously reading about "those saving for retirement in this crisis" and "keep investing". Ok, how about all those fools who ARE retired? Not one word. How about it?

    J.C.

  • Report this Comment On October 23, 2008, at 7:42 AM, TMFMarlowe wrote:

    bbldundee, we've done a couple of articles along those lines -- but maybe it's time for another one. Check back later today and tomorrow. I'll see what I can do for you.

    Thanks for stopping by.

    John Rosevear

  • Report this Comment On October 23, 2008, at 2:22 PM, 181736065 wrote:

    John,

    All of your "Highly Rated Large Caps With Hefty Dividends", ones similar to those you recommend we "keep investing" in are down by 20% to 40, and they are getting "crushed" again as the market resumes its downturn.

    In fact, nearly all of the Motley Fool Income Investor Stocks are down by 30% to 40% this year alone - some even more. (Even many of the non financials and non energy stocks!)

    Why aren't the "Dividend Stocks" with good cash flows holding up?

    Why is this not working? Looks to me like "dividend stock" investing really doesn't work anymore.. or am I wrong?

    Bill

  • Report this Comment On October 23, 2008, at 3:54 PM, TMFMarlowe wrote:

    Bill, these are buy-and-hold recommendations. The idea is that if you buy businesses that won't get hurt too badly in the recession and hang on until prices recover -- and they will -- you can reinvest the dividends to accumulate additional shares while prices are down. It's a way to lock in some positive return no matter what the market does in the near term. Remember that you only lose money if you sell!

    As for the good stocks that are down, everything but everything is getting pounded right now. That's what happens when broad-based funds start unwinding and liquidating -- the good ones get thrown out with the bad. It's not necessarily a reflection on the company's prospects, the stock is just one more asset that's being dumped to raise cash. But the selling will stop at some point, and values will begin to reassert themselves. I suspect we'll see the strongest ones start to recover first.

    What I'm encouraging folks to do -- and what I'm doing myself -- is to move from what they have to what they want while ALL prices are down. Get set with a portfolio you'll be able to hold through the recession, one that will give you some return no matter what. Does that make sense?

    John Rosevear

  • Report this Comment On October 23, 2008, at 8:06 PM, 181736065 wrote:

    Hi John,

    Thanks for your response.

    I have two questions for you and our community as I wish to start buying dividend stocks...

    1. How do I find "the good ones" which have been "thrown out with the bad"., and

    2. How long do you suspect this "suppressed value" situation to last? (ie.. can I "average in over the next year or so?)

    Do you think Income Advisor is pretty much "right on" regarding their picks.. or is there a "mutual" or "Index Fund" that will function pretty much just as well?

    Respectfully and Regards,

    Bill

  • Report this Comment On October 24, 2008, at 9:31 AM, TMFMarlowe wrote:

    I think this market will reward stock-picking rather than indexing even more so than usual once the dust starts to settle -- which if today's open is any indication, it clearly hasn't yet! If you're an Income Investor member then I would certainly start there -- thinking carefully about what kinds of companies will thrive during a recession. A lot of my best large-cap ideas are on their recommended list too, so I can't say I disagree with their approach, and their analysts are first-rate. Check out the II members' discussion boards for more thoughts and ideas along these lines.

    John

  • Report this Comment On January 30, 2009, at 9:35 AM, rolpres wrote:

    John,

    I enjoyed your article, and I look forward to one for those of us who have o pension but have reduced our income by working for less in a second career instead of going into full retirement. I have one comment: you said in a recent response to a reader that one does not lose money [on a stock, [the price of which has been reduced] until he sells. I'm not sure that the saying is true; you may not lose money, but your net worth is certainly reduced. Net worth is what I intend to retire on, not the hope of unlost money that doesn't really exist.

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John Rosevear is the senior auto specialist for Fool.com. John has been writing about the auto business and investing for over 20 years, and for The Motley Fool since 2007.

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