Stocks are again hitting big milestones -- do you remember what you wish you'd done the last time?
December 12, 2003: 8:09 AM EST
By Adam Lashinsky, CNN/Money contributing columnist
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SAN FRANCISCO (CNN/Money) - Some celebrate when the market passes important milestones like Thursday's surpassing of Dow 10,000.
Worrywarts don't have time for celebrations. They're too busy wringing their hands over what could go wrong.
Plenty could. That's why I wrote a column in October about what I wish I'd done in 2000 when stocks had soared to record levels.
This isn't to say I'm predicting another crash. I'm not predicting anything.
What I am saying is that it's worth considering what you wish you'd done the last time your stock accounts were flush with gains -- and at least consider doing some of those things today.
My list included raising more cash, selling shares of my employer, ensuring that no one sector accounted for a disproportionate share of my savings, buying bonds, purchasing real estate and cutting back my contributions to funds that were huge winners.
At the time, I asked readers for their suggestions. I got many that taken together constitute sound advice.
There's an even simpler way of stating this. The market is driven, the cliché teaches us, by fear and greed. It's good not to let one drown out the other. Folks who let greed take over weren't listening to their gut, which sometimes houses a fair amount of fear.
Dave Z. offers some of what I think is the best advice available.
"What I wish I'd done in 2000, something that required no hindsight or even foresight, was to take profits and use those profits to pay down debt," he writes. "I didn't want to incur more taxes by selling, and I didn't want to lose the opportunity to make even more, more, more. But I could have been smart enough to pay down debt, including my entire mortgage. Boy, what a different world it would be if I had."
Echoes Jon W.: "Pay off that mortgage. To heck with the deduction."
Now, economically, the tax deduction of mortgage payments, and the opportunity to earn better returns in the market than paying down low-interest-rate debt are worthy considerations.
For peace of mind, however, you can't argue with these guys. All things in moderation, of course. If you have sizable gains that could lower your nut considerably, what's the harm in sleeping better at night?
The tax issue gets complicated.
"I didn't sell [a] fund because I didn't want to give one third of the gains to Uncle Sam," writes Chris H. "Big mistake!! I should have sold and paid the taxes!"
Right. The tax code favors long-term investing. But paying the taxes is better than losing the money. You'll have to pay the taxes some day. Don't forget that.
In general, people need to think about all sorts of ways to hedge their bets. Simply holding cash is the easiest hedge.
Michael Z writes with another idea: "I should have shorted the stock of my in-the-money options that I couldn't exercise yet."
This is a sophisticated technique, but a decent idea. If your company's shares go up, you make money and pay for the bet against the stock. If the shares go down, the options are worth less but the short is a winner.
Big brokerages do this sort of thing for top executives all the time. If you're fortunate enough to have lots of options, maybe it'll work for you too.
So celebrate Dow 10,000. But don't forget what happened last time the party got out of hand.
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