This is one of those days that makes investors nervous, and rightly so.
The Dow, the S&P 500 and Nasdaq sold off sharply. Small company stocks in the Russell 2000 are now in correction territory, meaning they’ve fallen 10 percent from their recent peak.
There are several reasons. One is that Wal-Mart’s profit report suggested that US consumers aren’t spending. Another is that an influential money manager named David Tepper told an investment conference in Las Vegas last night that he was beginning to worry that stock prices were flirting with a danger zone, given slow economic growth.
So what should you do? The answer is probably nothing. If you’re a long-term investor who doesn’t need to tap your investments for five years or more, and if the reasons you had for investing in a stock or fund still hold true, you’re almost surely better off riding out short-term dips in the market. When you sell, you incur transaction costs – and a possible tax liability.
But don’t forget that the best investors have a sell discipline – a price for taking profits or stopping losses.