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Ritholtz: You Can “Eat Cat Food Tacos In Retirement,” Or You Can Do This…

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With the third quarter underway, most investors want to know: What’s the second half of the year going to look like?

Odds are pretty good stocks won’t enjoy a repeat of the first half of the year, when major averages surged to all-time highs before stumbling a bit in June. Still, a rollicking start to 2013 left the Dow up 13.8% heading into Q3.

Related: Don't Be Fooled; Sell Gold at $1,400, Then It's All Downhill, Says Ritholtz

The second half of the year is likely to feature “digesting the gains we saw in the first half,” says Barry Ritholtz, CEO of Fusion IQ and author of The Big Picture blog.

“We had a HUGE rally from Jan. 1 to May 22... a 30% annual run rate. That’s way too fast, too soon. A little backing and filling makes some sense.”

But ‘a little backing and filling’ is a far cry from a new bear market, much less the 2008-style collapse many are braced for. Sentiment has certainly improved from those dark days but, overall, many investors remain more fearful vs. greedy, which is bullish from a contrarian perspective.

Reflecting on the so-called June swoon or “Taper Tantrum” that brought major averages down from recent records, Ritholtz notes: “I’ve never heard such sturm und drang when we’re 5% off all-time highs. That’s typical of a post-crash, post-crisis psychology which has investors very skittish in cash on the sidelines.”

In a recent column in The Washington Post, Ritholtz offered advice to investors who can’t get the memories of 2008 out of their minds and missed out on the massive rally since the March 2009 lows. In the accompanying video, he summarizes the advice for taking emotions out of investing:

  • Have a plan.
  • Execute it faithfully.
  • Be diversified.
  • Contribute regularly.
  • Max out tax-deferred accounts.
  • Be an asset allocator.
  • Think long-term.

It may sound unsexy but “finance should really be boring,” Ritholtz says, suggesting investors must avoid what he calls “the cocktail party risk” of having a very exciting and fast-moving strategy based on swinging in and out of stocks and various asset classes. “If you want to have cat food tacos in retirement, keep trading like that,” he quips.

Aaron Task is the host of The Daily Ticker and Editor-in-Chief of Yahoo! Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com

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