Over the past months we have seen volatility return to the market. This volatility is something that many had forgotten the feeling of while living through the longest bull market seen in our history. Many have only seen a bull run in their investing lives. While you may be concerned with the balance of your 401k and other investment accounts, it is important to remember these few points before reacting.
- Humans are irrational creatures. Time and time again we are told to buy low and sell high. However, when we start to see the balances fall it is human nature to want to reduce your loses by moving into ‘safer’ assets. Unless you are in dire needs of the funds within six months, this is not typically an advisable plan. Studies have shown that time in the market is better than timing the market. If you exit the market during a downturn and wait for the ‘right time’ to get back in, chances are you have already missed some of the best days of the recovery. When navigating a bear market, think of it is fighting a fear. Stay calm and don’t make any sudden moves.
- Diversification is key in any market cycle. By diversifying your assets, you will be able to limit potential negatives felt when one invests in only one security or industry.
- Keep investing. While it is difficult to watch the balance of your 401k fall, you must remember that this is the best time to invest. Depending on an individual investor’s situation this may be the time to continue contributions and even possibly increase contributions. Buying during periods of volatility can have tremendously positive impacts on your portfolio later in life. We often recommend that investors dollar cost average due to the uncertainties and inability to time the market. This means that they will systematically invest a certain amount over a specified period. Please contact us or your financial adviser to discuss if this option is right for you.
- Don’t invest money you don’t have. While it is great to increase your 401k contribution or start to invest in your favorite store/restaurant, etc. when their stock price falls. Remember to only invest what you can afford to lose. If you are not comfortable with the potential of losing the money, then do not invest it. Now more than ever, it is crucial to have your 3-6 months of emergency reserves set aside. These funds are not to be used for investment purposes.
- Consult with a financial professional. When trying to navigate the waters of investing, consulting with a professional is the nest idea. Most of us have been through this before and can provide to you real life examples and industry respected resources as we help you develop a financial plan to not only navigate the current state but achieve your future goals.
While “stay the course” may be the last thing you want to hear from your financial advisor, it is one of the pinnacles of a long-term strategy. If you would like to discuss investment options or create a financial plan of your own, you can reach us at (812) 913-7701.