WEATHERING THE CURRENT MARKET

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

For the Dow Jones Industrial Average, Oct. 27 was a history-making day. The Dow suffered its largest drop in history, 554 points. (The Dow dropped 508 points on Black Monday Oct. 19, 1987.) It was also the first time the market had been closed early since the assassination of John Kennedy and the first time ever that trading in the market had been halted.

What caused this market drop? Much of the blame can be placed on Wall Street jitters concerning the Asian market. The Hong Kong and Japanese markets have recently taken a beating. It is important to point out, however, that these markets will have limited impact on U.S. markets. Another concern of investors is concern over profit growth.

At times such as these, it's crucial to look beyond the headlines and hype and determine exactly how the market's performance affects you. A good place to start is by examining your investments. Why did you invest in them in the first place? Was it for a short-term profit or long-term results? If your investment objectives haven't changed, don't let short-term market performance derail your carefully laid long-term plans.

The October drop over the course of several days is the first 10 percent correction in seven years. History shows that this is indeed unusual. Since 1900, the market has survived 106 corrections of 10 percent or more. That's more than one 10 percent correction per year.

Not only has the market survived such corrections, it has always gone on to recover its losses and rise even higher.

-- Since 1982, the average total return from the stock market (including dividends and price appreciation) has been running 7 percent over the historical average.

-- The market has gained 2,000 points in less than 10 months. It crossed 8000 for the first time in July.

-- Price-to-earning ratios on the market have been higher only four times in this century.

When experts call this an exceptional market, they mean exactly that.

So what s been happening to the market? Recently there have been a number of sell-offs that have led to a decline in U.S. stock and bond markets and a weakened dollar. The bottom line is this: The market will experience ups and downs that could cause investors to be concerned about a rise in interest rates, but most economic indicators show favorable economic growth and controlled inflation.

So what should you do because of the market uncertainty?

Here are four tried-and-true rules for investing. Follow them, and you can weather any type of market.

Invest for the Long Term

The market will always rise and fall in the short term. Adopt and maintain a long-term investment strategy to increase your investment success. Trying to time the market is futile. Instead, stick with a buy-and-hold strategy. One study showed that you would have to time the market correctly at least 82 percent of the time to equal the performance of an investor who buys and holds stock. Remember it's time in the market, not timing the market, that's crucial.

Invest Systematically

Invest a fixed amount at regular intervals. This strategy, also called dollar-cost-averaging, allows you to buy more shares when prices are low and fewer shares when prices are high. Over the long term, systematic investing typically allows you to purchase shares at a cost that's below the average price of the security.

Select Quality

Select individual stocks and stock mutual funds that have demonstrated consistent growth in earnings and dividends over at least the past 10 years, longer if possible. A "hot" stock often fizzles as quickly as it rose, but quality is timeless.

Diversify

Spreading your money among a variety of investments can significantly reduce risk. A properly diversified stock portfolio should include seven to 10 stocks. The study found that 90 percent of a portfolio's overall performance depends on how well-diversified it is. Diversify by maturity, industry and geographical location in addition to investment type.

The most important thing to remember when investing is to avoid rash decisions based on the current market situation. If you've chosen quality, long-term investments and your investment needs and objectives haven't changed, you should probably stick with your present investment strategy.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.