5 Cures For Rocky Market Fever

Thanks to the emerging field of behavioral economics, we can identify what investors consistently do wrong. How do we resist the temptation to exit the market at the first sign of trouble? The best route is through identification, education, and planning. When you can identify what behavior is likely to occur under certain market conditions, you can take corrective (or better yet, preventive) action. Here are some antidotes to behavioral mistakes that often crop up in volatile markets:

Focus on Quality Stocks for Longer-Term Needs. Although bonds are important in diversifying risk and meeting shorter-term needs, you can also bolster your longer-term stock investments' downside protection by seeking out strong dividend-paying public companies. Find companies that are consistently raising their dividends or buy mutual funds or exchange-traded funds such as the Vanguard Dividend Appreciation Index ETF (VIG). Dividend funds and stocks are not only less volatile than non-dividend payers, they offer another potent psychological benefit: You get positive reinforcement every quarter (or through a year-end distribution) when dividend payments are made.

Source: Morningstar

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