Today’s 25th Anniversary of Market Crash is a Reminder to Diversify and to Reallocate Assets

Paul Dykewicz

For those of us who endured it, the stock market crash of October 19, 1987, and today’s 25th anniversary of that stomach-churning day should serve as compelling reminders about the importance of diversification and asset reallocation.

Advertisement.

When the markets soar and seem to have no end in sight, a sharp reversal always is a possibility. To avoid losing all of your money, diversification and reallocation of your holdings are important steps to take.

You do not need to be a great investor such as Warren Buffett to follow these investing basics. The keys are setting aside the time to review your holdings on a periodic basis — once a year, for example — and actually following through by adjusting your portfolio accordingly.

This week’s earnings shortfalls by Google (GOOG) and Microsoft (MSFT) are two examples of why diversification and asset reallocation are worthwhile. Both companies have enjoyed tremendous growth and their share prices have risen commensurately in the past. However, technology stocks also have the potential to fall sharply, too.

Advertisement.

Google and Microsoft are not the only technology stocks that are reporting results this week that are falling short of expectations.

“Intel (INTC) and Advanced Micro Devices (AMD) cut their respective outlooks because personal computer-related semiconductor demand is set to decline for the first time in a decade, given the secular shift toward smartphones and tablets,” Chris Versace, an investment analyst who writes the PowerTrend Profits newsletter, told me. “That was confirmed in Google’s earnings results when the company shared that more than 1.3 million Android-powered smartphones and tablets are being activated each day.”

One of my worst personal investment mistakes was to avoid reallocating when science and technology stocks were peaking a number of years ago. I enjoyed riding those stocks up and I also watched unhappily as they fell.

A good way to avoid huge losses is to set sell-stop orders on your holdings to help you trade out of such positions if the markets begin to plunge. Such stop loses allow you to limit your risk and either preserve a portion of your gains or avoid losing big money and thereby feeling compelled to hold onto your equities in hopes of recovering your losses when the tailspin ends and an anticipated recovery begins.

Advertisement.

The monetary-easing and interest-rate reducing policies of central banks around the world this year have helped to keep the markets trend upward. The markets usually are driven by strengthening corporate revenues and profits, so caution is warranted when other factors propel equities ahead.

Long-term investors can absorb market pullbacks but such drops can be especially painful when a lack of diversification leaves you vulnerable to a major retreat by a single sector. For that reason, the 25th anniversary of the 1987 market crash recalls a drop of almost 23%, the largest one-day percentage-point plunge in history, and is a good reminder that investors never should forget to diversify and to reallocate their assets.

share on:

Like This Article?
Now Get a FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE


img
share on:

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader
LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader
LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener
LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program
LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader
LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor
LEARN MORE HERE

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives.  He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

Product Details

  • Technology Report
  • Technology Report PRO
  • Moonshots
  • Private Reserve
  • Millionaire Circle
LEARN MORE HERE

DayTradeSPY

DayTradeSPY was founded by head trader Hugh Grossman, a retired internal auditor for a Fortune 500 company. After years of first-hand experience trying out one trading strategy after another, Hugh instead developed his own trading system centered around day trading SPY options. That’s it... Nothing else.

Product Details

  • Trading Room
  • Pick of the Day
  • Inner Circle
  • Online Workshops
LEARN MORE HERE