Retirement investors should stick to strategy in volatile marketscomment (0)
August 18, 2011
American stock markets fell Aug. 8 in the wake of the Aug. 5 announcement that Standard & Poor’s had lowered the United States’ credit rating from AAA to AA+. The news rattled Asian and European markets the morning of Aug. 8 and led to a steep sell-off overseas. In the United States, the Dow Jones industrial average fell more than 634 points in Aug. 8 trading.
Even in the midst of volatile markets, properly allocated retirement investors should maintain their investment strategy.
Although it is always prudent to review your investments periodically, making changes in volatile markets can lead to emotional mistakes.
“Our retirement-plan participants should always keep the long-term view first and foremost,” said O.S. Hawkins, president of GuideStone Financial Resources. “It’s easy to allow disturbing headlines to cloud our judgment. In all times — but especially times like these — the important thing is for investors to remain rational, consider their financial goals and to avoid making decisions guided by emotion.”
Whether the market is up or down, there are three key areas that can help investors make decisions about how to handle their investments.
• Focus on objectives not emotions.
GuideStone retirement-plan participants can access the free GPS: Guided Planning Services tool both online or by telephone appointment.
With GPS, participants can see whether they are properly allocated based on their risk tolerance and investing time horizon — generally, the time until they’ll need to start drawing their retirement accounts down. Tools like GPS can help an investor look at their investments more objectively and make any necessary changes to their account based on facts, not today’s headlines.
• Avoid making impulsive decisions.
Guard against making ad hoc changes in your portfolio or changes based on short-term market movements can lead to failure as it promotes “buying high and selling low.”
The performance of your account will be determined based on results of the financial markets in the future, not the past. Selling today cannot avoid yesterday’s losses in a down market. Likewise, in an up market, you cannot buy yesterday’s performance by investing in the hottest fund.
• Maintain realistic expectations about market behavior.
Markets move up and down over time in response to social, political and economic events.
Equity investments are by nature more volatile than some other asset classes such as cash and bonds. Investors should be able to accept significant short-term fluctuations in the value of their portfolios. (GuideStone)