The 1017 point drop in the Dow this week has wreaked havoc on my investment portfolio. Unfortunately, I believe the indices will continue to fall next week. At this point,China and the Fed have lost their economic credibility with the market. Hence, I expect the selling will continue.
One factor that may contribute to a steeper decline is the high level of existing margin debt. As stock prices fall, accounts with margin debt may receive margin calls that require further selling of stock. I have also read that the emerging market currency crisis may be another factor causing a stock market decline, just like in 1998.
Right now, I'm anticipating at least a 20% drop in the market indices. During that time, I will be trickling in a small amount funds into commission free broad market ETFs. In addition, I will make some small purchases of specific stocks to build our retirement dividend portfolio. For now, I don't expect to put more than 20% of our cash position back into the market.
For more on Reflections and Musings, check back Saturdays for a new segment.
This is not financial advice. Please consult a professional advisor.
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