Clients often come to us with worries about the market. It's up, it's down, it's up again; should they sell? Buy? Will interest rates go up? What about inflation?
We certainly understand these concerns. After all, the stock market has taken many investors on a wild ride over the past few years. It's easy to see how retirement investors could have feelings of uncertainty. Despite the (breathlessly reported) news in the financial media, take a deep breath and remember that reacting emotionally to market conditions isn't usually the best course of action.
Before you make changes to your 401k accounts, consider these four factors.
Is Short-Term News Affecting Your Financial Planning Strategies?
Keeping up with the latest financial and economic news is great -- we do it ourselves -- but it's all too easy to get a bit obsessed with the ups and downs of the market. But keep in mind that the financial media is focused on the short-term trends; after all, they're in the business of selling ads, and sensationalism tends to draw more attention.
While falling stock prices may make news on Monday, their slow, steady climb over the next four days -- or four months -- just doesn't make for an exciting headline. Basing your financial strategies solely on what you read, watch or hear in the financial media may mean that you're basing your decisions on faulty or skewed information.
Will a Change Alter my Long-Term Comprehensive Financial Plan?
Before making a change to your financial planning strategies, consider your long-term goals and focus. You worked with your wealth advisor to construct a well-diversified portfolio that's designed to stand through a range of market cycles, from bull to bear and everything in between. Making changes based on emotions or reactions to short-term news can move your portfolio away from this state of balance.
Instead, consider your asset allocation across a range of investments, including:
- Small-cap stocks
- Mid-cap stocks
- Large-cap stocks
- International stocks
- Short-term fixed income securities
Depending on your risk tolerance, preferred financial strategies, investment timeline and financial situation, work with your wealth advisor to create the right balance for your needs -- and consider any potential investment changes in light of remaining on this long-term track.
Am I Letting Short-Term Market Performance Derail My Wealth Strategies?
If you let every little bump and bruise in your 401k account's performance affect your emotional state, you'll add to your stress load and tempt yourself to make changes that may not be in your financial best interest. Attempts to "time the market" by jumping in and out simply lead to more fees and expenses, without the ROI to justify it. Long-term, passive investment strategies have historically resulted in higher returns than active trading strategies; while market volatility is inevitable, over time, the market tends to go up.
Am I Working with a Trusted Wealth Advisor?
Where do you get your financial advice? From a friend, family member, talking head on the TV, or a fee only wealth advisor with your best interests at heart? Consider where the advice is coming from -- then sit down to speak with a trusted wealth advisor who can keep you on track.