The greatest stock market collapse since the Great Depression has been humbling for just about everyone, especially those with a heavy concentration of investment funds in stocks. If you invested in stocks over the past year, you’ve probably lost money – perhaps, a lot of money. What goes down, must come up though, right? Well, even with the recent rebound, many of us are still down 20, 30, or 40% in our investments.

In these uncertain times, perhaps now is a good time to reflect on how we can make lemonade out of lemons in similar situations down the road, even if they are not quite as dramatic as this bear market and rally have been. Here’s what I have learned (or has been painfully reinforced):

1. Don’t Pull Out of Stocks when they are Doing Poorly

It takes an incredible amount of patience and discipline to heed this advice. If you pulled your money out, you probably did so at a point when the markets were lower than they are today. Yeah, I know, it’s hard to kick your own ass. I pulled some of my stock investments out, but I’m wishing that I had not pulled any out.

2. Piling in During a Rally may be Just as Ill Timed as Pulling Out in a Collapse

The S & P 500 has gone up almost 50% over the last few months. Think about that for a second. That’s a handful of years of above average returns in the span of a few weeks. All the while, P/E ratios of stocks are still significantly higher than average. This rally has been ridiculous, and I’ve been waiting to buy in at set pullback points. I have a hunch that the optimism (or lack of pessimism) and resulting returns that has pulled bandwagon investors back into the market in recent weeks is going to slaughter many. This still remains to be seen, of course, but investor beware of irrational market rallies.

3. Index Funds Rule the Day

Most actively managed funds have performed horribly in this market. I’m not sure if this is a result of them trying to make up for the poor performance and trading in and out of the next 200% return-in-a-month hot stock or what. Some fund managers that I had good faith in have performed very poorly in comparison to their indexes. I’m not completely done with actively managed funds, but I have a new found respect for index funds and low cost ETF’s and will be looking to shift funds from actively managed to them.

4. This has Been a Great a Buyer’s Market

Back in March, I highlighted 5 ways that twenty-somethings can benefit financially from the recession. Whether you’re in the stock market, market for a home, for a car, or for whatever else you are looking to purchase, this recession has presented an amazing opportunity to find things on the cheap. If your employment is stable, your financial situation is good, and your income has remain largely unchanged – this isn’t the time to hide in a hole and wait for better days before making your purchases. Sure, it makes sense to save more and prepare for the worst – but don’t be afraid to live a little and invest in the future.

Market Movement Discussion:

• What have you learned from the stock market collapse and rally?
• How has this market impacted your investing strategy?

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