What’s Your Game Plan for the Stock Market?

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Source: http://www.flickr.com/photos/imosaad/

Source: http://www.flickr.com/photos/imosaad/

The stock market is an emotional roller coaster that has more drama than a daytime soap opera. When stocks are rising, investors feel too clever for their own good and enter a state of euphoria. When stocks decline, they often hold on in disbelief until they sell at the worst possible moment — the bottom. Either way, investors should have a game plan in place ahead of time to keep emotions muted.

Mr. Market has pulled investors in both directions over the past few months. After all three major U.S. indices defied expectations and posted record returns last year, stocks took a tumble early in 2014. In January, stocks posted their first monthly loss since August 2013. The Dow Jones Industrial Average dropped 5.3 percent, representing the worst January for the blue chips since 2009, and the second worst since 1990. Meanwhile, the S&P 500 fell 3.6 percent and logged a three-week losing streak — its worst run since 2012.

The selling pressure continued as February’s first trading day sent the Dow and S&P 500 sharply lower for their steepest decline since June. In fact, it was the Dow’s first break below its 200-day moving average since December 2012, and the S&P 500’s second worst start to February since 1928. Equity funds logged a record-high outflow of about $28 billion for the week ended February 5, 2014.

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