http://blog.mutualdecision.com/articles/2007/08/29/gut-check-time en-us 40 Insight from the minds behind MUTUALdecision <div>The recent events in the stock and bond markets drew everyone&rsquo;s attention.&nbsp;No doubt you took a look at your investments and, perhaps, worried about one or two.&nbsp;Maybe, you made some changes to your portfolio.&nbsp;Let&rsquo;s take a look at your experience and see if there are some lessons to be learned.</div> <div>&nbsp;</div> <div>Did you lose sleep, literally or figuratively, over any of your investments? &nbsp;&nbsp;This is the gut check measure of risk tolerance, not quantifiable, but accurate nonetheless.&nbsp;Investing is not an emotional decision, it takes hard work and discipline, but if you worry too much about an investment, it isn&rsquo;t right for you.&nbsp;One of the hardest parts of investing is keeping your emotions out of it (i.e., taking a loss or selling your &ldquo;favorite&rdquo; mutual fund).&nbsp;Emotion will only cause you to buy at the market highs and sell at the lows.&nbsp;But, did your gut tell you to sell anything during the recent market correction?&nbsp;Rule number one of gut check investing is: if you lose sleep over an investment, it&rsquo;s probably too risky for you.&nbsp;How do you know?&nbsp;This brings me to the second rule of gut check investing. </div> <div>&nbsp;</div> <div>When making a decision to buy or sell a mutual fund, do your research. &nbsp;Is it a sound fund?&nbsp;Does it meet your investment objectives?&nbsp;How would you feel about this investment if the market were headed in the opposite direction?&nbsp;Write down your reasons, put then in a drawer (or store them on your hard drive) and pull them out when you&rsquo;re thinking about selling.&nbsp;The purpose of this exercise is to avoid being swept up in the euphoria of a bull market, and making too risky investments, or selling good investments, out of fear, during a market correction.&nbsp;Make your analytical decision, then ask yourself, factoring out the current market emotional climate, does it feel right?&nbsp;If you&rsquo;re not comfortable, don&rsquo;t buy the fund, or sell it, if you own it.&nbsp;This is the gut check buy/sell decision making process. &nbsp;I want to emphasize the sequence. &nbsp;Do your analytical work first, then sit back and see how you feel about it.&nbsp;The gut check buy/sell decision is a one-way process -- it can stop a buy, but it can&rsquo;t stop a sell.</div> <div>&nbsp;</div> <div>Sleep well.&nbsp;Sweat dreams.</div> Wed, 29 Aug 2007 12:25:00 -0500 urn:uuid:76a966b4-59de-4c01-9f16-264211c73053 Bill Byrnes http://blog.mutualdecision.com/articles/2007/08/29/gut-check-time Investing Mutual Funds Mutual fund blog Investing Risk Tolerance