YOUR FUNDS
Nervous over the market swings? Don’t be — stick to a plan
REBECCA WARREN is a certified financial planner and certified senior adviser in Mesa. She can be reached at (480) 357-8380 or by e-mail at rebecca@ warrenfinancialservices.com.
How are you handling the financial news these days? Are you sitting dumbfounded in front of the TV? Do you strap on the iPod and vow not to turn it off until the crisis passes? Or do you check your financial plan to make sure you are well-positioned for clearing after the storm? It’s easy to succumb to the urge to panic in an economic crisis. Some people sell fearing worse losses. But sudden action is usually a mistake. In the late 1980s, Harvard psychologist Paul Andreassen made news with a research project, which found that those who listened to market news actually made lower returns. Why? Because those who sold — or bought — during a market swing probably discovered a day or two later that the market was really running on hype, not fundamentals. Now is not a time for knee-jerk action. If you haven’t already done so, it’s time to pay a financial planner to devise a financial strategy that matches your risk tolerance and long-term financial goals. No, there is absolutely no way to guarantee that you’ll never lose money in a turbulent market. But if a plan truly matches you, the noise level on TV shouldn’t make a difference because you’ll already have contingency plans in place for rough times. So the next time the Dow spikes or slides, ask yourself:
• What’s my plan? Much of the riskiest investing, overbuying and panic selling during the late 1990s and early 2000s could have been avoided if individual investors had sought advice for achieving longterm specific goals such as retirement or a college education.
• Am I prepared to stay invested — no matter what? In 2004, SEI Investments studied 12 bear markets since World War II. Investors who either stayed in the market through its bottom, or were fortunate to enter at the bottom, saw the S&P 500 gain an average of 32.5 percent (not counting dividends) during the first year of recovery. Investors who missed even just the first week of recovery saw their gains that first year slide to 24.3 percent. Those who waited three months before getting back in gained only 14.8 percent.
• Am I diversified? The Nasdaq lost 39 percent of its value just in 2001, and an additional 21 percent in 2002. Meanwhile, real estate investment trusts, which performed poorly in 1998 and 1999 when stocks were booming, had banner years in 2000 and 2001, performed so-so in 2002 and had an excellent 2003. Bonds also returned well during the bear market. Your planner, based on your risk profile, should have you in diversified investments that fit your goals.
• How will this impact your retirement timetable? You might want to continue working full time or plan a phased-in approach as you continue to build assets. There is a great danger now that people may become either too risk-averse or assume too much risk in planning for their retirement, and that’s why it’s wise to get advice.
• How’s my spending? It’s a good time to make a budget or reassess the one you have. Keep your spending smart, your debt low and have an emergency fund of three to six months’ worth of living expenses in case your job situation goes south.
• Should I keep saving and investing? Definitely. When times are tough, it’s wise to examine all your investment choices, but if they make sense, definitely put what you can afford in. You’ll reap rewards when the market returns. Now is not a time for knee-jerk action. If you haven’t already done so, it’s time to pay a financial planner to devise a financial strategy that matches your risk tolerance and long-term financial goals.
