“To buy when others are despondently selling and sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.”
-John Templeton, Founder of Templeton Funds
When you think about it, investing our money is really a scary proposition. The quote by John Templeton really says it all, and one of the secrets to investment success requires us to do the opposite of what our gut tells us. Recent events in our financial markets have left many second-guessing themselves and their retirement accounts. Over the past month, I’ve been talking with federal employees all over the country and would like to share some thoughts and ideas discussed in many of those conversations.
Avoid Rash Decisions
If you've been watching the market lately, perhaps the first question on your mind is, "Should I make a big change in my investments?" In reality, a volatile market isn't the best time to do a complete makeover of your portfolio, especially if you have long-term financial goals you're trying to address. Even if you feel that your portfolio needs adjusting, maintaining a firm grasp on your fundamental investment strategy can help you be more thoughtful about making any changes.
Think of each investment as a tool in your investing tool kit, and your asset allocation strategy as your blueprint. Some investments are generally designed to pursue long-term growth, others to provide income, and still others to represent stability. Each is valuable in its own way, but it doesn't make sense to use a hammer to remake your portfolio if what you really need is a screwdriver to make minor adjustments. Don't randomly abandon one investment for another unless you know its intended role in your portfolio, whether that role is still appropriate, and the pros and cons of any replacement you're considering.
Remember that diversification can help offset the risks of certain holdings with those of others. When one type of investment is losing ground, another may be gaining or holding steady.
Diversification and asset allocation cannot ensure a profit or guarantee against a loss, but they can help you understand and manage investment risk.
Could this be a chance to rebalance at a discount?
In a volatile market, it's easy to allow your emotions to influence your investment decisions. But if you can keep your cool while those around you are losing theirs, you may be able to take advantage of potential opportunities.
One way to do that is by reviewing your portfolio to determine if it's time to rebalance your asset allocation or modify your level of diversification.
Rebalancing means adjusting your portfolio to get it back to your original target allocation. In today's market, it often makes sense to first determine whether that original target is still appropriate for your needs. If it makes sense to return to your original allocation or establish a new one, there are two ways to proceed. You can sell securities in some asset classes and invest the proceeds in others, and/or redirect new investment dollars into selected asset classes until the target allocation is reached.
If your current allocation is appropriate, but there are concerns with your overall level of diversification, it's possible to shift some investments within a given asset class.
Asset allocation and diversification can help manage investment risk and might better position your portfolio for the future. The silver lining to broad-based market turmoil is that you may be able to acquire some investments at a discount relative to what you would have paid when the market was up.
Continuing to invest may help you stay on course
In the current market environment, the value of your holdings may be fluctuating widely — and it's natural to feel tentative about further investment. However, regularly adding to an account that's designed for a long-term goal may cushion the emotional impact of market swings. If losses are offset even in part by new savings, the bottom-line number on your statement might not be quite so discouraging. And a basic principle of investing is that buying during a down market may help your portfolio grow when the market turns upward again.
If you are investing a specific amount regularly regardless of fluctuating price levels (as in a typical workplace retirement plan), you are practicing dollar-cost averaging. Using this approach, you may be getting a bargain by continuing to buy when prices are down. However, you should consider your financial and psychological ability to continue purchases through periods of fluctuating price levels or economic distress; dollar-cost averaging loses much of its benefit if you stop just when prices are reduced, and it can't guarantee a profit or protect against a loss.
If you can't bring yourself to invest during this period of uncertainty, try not to let the volatility derail your savings program completely. If necessary, to help address your concerns, you could continue to save, but direct new savings into a cash-alternative investment until your comfort level rises. Though you might not be buying at a discount, you could be accumulating cash reserves that could be invested when you are ready. The key is not to let short-term anxiety make you forget your long-term plan. If you have questions or would like to discuss your situation in more detail, feel free to email me.
All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.
The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Asset allocation and diversification are methods used to help manage investment risk; they do not guarantee a profit or protect against investment loss.
James De La Torre has conducted federal benefit and financial planning seminars all over the country. He has been a keynote speaker at federal conferences and works with federal professional organizations on ways to improve the communication of federal benefits to their membership. Jim has appeared as a guest on “Fed Talk” on the Federal News Radio Network, discussing the gaps in federal benefits and the financial impacts employees face. Jim holds a Charter Retirement Planning Counselor’s (CRPC) designation from the College of Financial Planning, and is a member of the Financial Planning Association. Please direct questions or comments directly to James at [email protected].
-John Templeton, Founder of Templeton Funds
When you think about it, investing our money is really a scary proposition. The quote by John Templeton really says it all, and one of the secrets to investment success requires us to do the opposite of what our gut tells us. Recent events in our financial markets have left many second-guessing themselves and their retirement accounts. Over the past month, I’ve been talking with federal employees all over the country and would like to share some thoughts and ideas discussed in many of those conversations.
Avoid Rash Decisions
If you've been watching the market lately, perhaps the first question on your mind is, "Should I make a big change in my investments?" In reality, a volatile market isn't the best time to do a complete makeover of your portfolio, especially if you have long-term financial goals you're trying to address. Even if you feel that your portfolio needs adjusting, maintaining a firm grasp on your fundamental investment strategy can help you be more thoughtful about making any changes.
Think of each investment as a tool in your investing tool kit, and your asset allocation strategy as your blueprint. Some investments are generally designed to pursue long-term growth, others to provide income, and still others to represent stability. Each is valuable in its own way, but it doesn't make sense to use a hammer to remake your portfolio if what you really need is a screwdriver to make minor adjustments. Don't randomly abandon one investment for another unless you know its intended role in your portfolio, whether that role is still appropriate, and the pros and cons of any replacement you're considering.
Remember that diversification can help offset the risks of certain holdings with those of others. When one type of investment is losing ground, another may be gaining or holding steady.
Diversification and asset allocation cannot ensure a profit or guarantee against a loss, but they can help you understand and manage investment risk.
Could this be a chance to rebalance at a discount?
In a volatile market, it's easy to allow your emotions to influence your investment decisions. But if you can keep your cool while those around you are losing theirs, you may be able to take advantage of potential opportunities.
One way to do that is by reviewing your portfolio to determine if it's time to rebalance your asset allocation or modify your level of diversification.
Rebalancing means adjusting your portfolio to get it back to your original target allocation. In today's market, it often makes sense to first determine whether that original target is still appropriate for your needs. If it makes sense to return to your original allocation or establish a new one, there are two ways to proceed. You can sell securities in some asset classes and invest the proceeds in others, and/or redirect new investment dollars into selected asset classes until the target allocation is reached.
If your current allocation is appropriate, but there are concerns with your overall level of diversification, it's possible to shift some investments within a given asset class.
Asset allocation and diversification can help manage investment risk and might better position your portfolio for the future. The silver lining to broad-based market turmoil is that you may be able to acquire some investments at a discount relative to what you would have paid when the market was up.
Continuing to invest may help you stay on course
In the current market environment, the value of your holdings may be fluctuating widely — and it's natural to feel tentative about further investment. However, regularly adding to an account that's designed for a long-term goal may cushion the emotional impact of market swings. If losses are offset even in part by new savings, the bottom-line number on your statement might not be quite so discouraging. And a basic principle of investing is that buying during a down market may help your portfolio grow when the market turns upward again.
If you are investing a specific amount regularly regardless of fluctuating price levels (as in a typical workplace retirement plan), you are practicing dollar-cost averaging. Using this approach, you may be getting a bargain by continuing to buy when prices are down. However, you should consider your financial and psychological ability to continue purchases through periods of fluctuating price levels or economic distress; dollar-cost averaging loses much of its benefit if you stop just when prices are reduced, and it can't guarantee a profit or protect against a loss.
If you can't bring yourself to invest during this period of uncertainty, try not to let the volatility derail your savings program completely. If necessary, to help address your concerns, you could continue to save, but direct new savings into a cash-alternative investment until your comfort level rises. Though you might not be buying at a discount, you could be accumulating cash reserves that could be invested when you are ready. The key is not to let short-term anxiety make you forget your long-term plan. If you have questions or would like to discuss your situation in more detail, feel free to email me.
All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.
The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Asset allocation and diversification are methods used to help manage investment risk; they do not guarantee a profit or protect against investment loss.
James De La Torre has conducted federal benefit and financial planning seminars all over the country. He has been a keynote speaker at federal conferences and works with federal professional organizations on ways to improve the communication of federal benefits to their membership. Jim has appeared as a guest on “Fed Talk” on the Federal News Radio Network, discussing the gaps in federal benefits and the financial impacts employees face. Jim holds a Charter Retirement Planning Counselor’s (CRPC) designation from the College of Financial Planning, and is a member of the Financial Planning Association. Please direct questions or comments directly to James at [email protected].