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Ignore predictions of calamity

By Sheyna Steiner ·
Friday, May 27, 2011
Posted: 12 pm ET

Today Nouriel Roubini, the New York University professor who famously predicted the housing bust and recession, declared that stock markets are on the verge of a correction and predicted a slowdown in economic growth.

Speaking at a conference in Budapest, Roubini attributed the potential slowdown to high oil prices and fallout from Japan's tsunami and the ongoing European debt crisis, a story from Bloomberg News reported, "Roubini sees stock-correction 'tipping point.'

From the story:

"Until now, equity prices were supported by better-than- expected earnings, sales and profit margins,” Roubini said. “But all three are under squeeze. With slow global economic growth, they’re going to surprise on the downside. We’re going to see the beginning of a correction that’s going to increase volatility and that’s going to increase risk aversion."

Investors could be in for a bumpy ride in coming months.

Unless you're as renowned for prognostication as Roubini, abandoning the stock market and hiding in safe investments is probably not the best move. If you jumped out of the market every time economists or analysts made a bearish call you would like find yourself whipsawed back and forth and losing money in the process.

The trick is not to invest more aggressively than you can handle. Evaluating the level of risk at which you're comfortable and then factoring in the rate of return needed to reach your goals is a great way to begin a financial plan and should make it easier to stick with it when the going gets tough.

While the stock market crash in 2008 cost many a lot of money in addition to their peace of mind, the real lesson from 2008 was in the recovery. People who panicked and sold blindly ended up losing more because they locked in their losses. Then they missed regaining the value of their investments as the stock market rose again in 2009.

Do Roubini's expectations for the stock market make you nervous? Do you have a plan for market volatility, what is it?

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John Doe
May 27, 2011 at 7:13 pm

All of my investments were in 100% safe instruments in 2008 and now... didn't lose anything in 2008 and actually increased the amount of money put away in 2008 and now. Not nervous one little bit... Most folks make the mistake of reaching for returns, and sometimes end up losing more then they make. Take the recent GM IPO and the media hype when it rolled out. Looking at the stock today it is trading below it's IPO price. It may eventually trade higher but that is risky speculation.