Patience is Your Ally in Tough Markets

20 Aug, 2008

Patience is Your Ally in Tough Markets

Posted by: earlhines In: Investing| Markets| Retirement

Earl Hines

Don’t Let Fear Drive Your Investing Behaviors

Like I predicted early in the year, the stock market has continued to be quite volatile, and is essentially moving “sideways” — with short bursts of gains followed by fast turn-around losses. I understand that with the recent behavior of market, you may be getting impatient. You may be thinking: “What should I do? Should I do something different? Should I get out of the market now?”

Remember, patience (and time) is your ally when investing. Therefore,
it’s important not to panic or change your investment strategy due to
short-term declines. That’s the surest way to turn “unrealized”
losses into permanent ones. So try to keep in mind…

Perspective: The market is going to rise and fall. Short-term stock market fluctuations happen, and they can occur quickly and often without warning.

Thing Long Term: Your investment plan should be long term, and any cash you need in the next couple of years should not be invested in the market in the first place. Adjusting a long-term financial plan in response to short-term market downturns can be a costly mistake.

Use Benchmarks: One reason I provide my clients with performance summaries quarterly is so that they can see how their portfolio compares to broader market benchmarks and therefore how I’m doing versus peers in our industry. It’s good to remember that all investors are in the same boat with regard to this year’s downturn.

It’s okay to watch the markets, but remember your TIME HORIZONS. There’s nothing wrong with staying informed or keeping abreast of the latest headlines. But don’t let today’s headlines affect your long- term outlook.

Consider this

In the last year, it’s possible that the market value of your home may have dropped 10-20%. If so, did you go out and sell your home? Or did you stay put because you were confident that the housing market would one day be better? Your time horizon with your home is probably at least 6-7 years, maybe as long as 15-20 years.

It’s a similar situation with the stock market in relationship to your long-term financial goals. Your time horizon is measured in years, even decades – not months or days. A long-term investment is typically five years or longer.

The long-term potential of the market is significant. In 1982, the Dow was in the high 700s. By the start of 2000, the Dow was well above 11,000. That’s more than a 1,500% gain. Note that it took 18 years. That’s what you should keep in mind. The stock market has not built itself or sustained itself with overnight success, but with long-term investment. People have stayed invested in stocks for 20, 30, even 50 years.

Don’t get caught up in the day-to-day. Step back from the volatility. Keep up with the news, but look beyond the moment and keep your long range goals in mind. If you’re trying to plan for a long-term goal (like a financially comfortable retirement), it makes sense to retain a long-term investment strategy.

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Tags: Investing, Markets, Retirement

Fearless Finance™