Three Keys to Investing in a Turbulent Market
2014 has started with some pretty big down days on the U.S. stock market, and other stock markets around the world. Investors are getting more skittish and who can blame them, especially after 30% or more of stock returns in 2013 with very little in terms of short-term volatility— 2013 made it all seem so easy to investors.
So now we have seen the Dow Jones Industrials average down by over 5% in January 2014, and early February has given us more market declines. The market experts are coming out of the woodwork with opinions on all things, including the crazy business of forecasting what investors should expect over the next day, or week or month (horoscopes, Ouija boards and palm readers have more credibility than short-term stock market forecasters).
Please let me provide three keys to investors during turbulent stock market times:
- Remember your personal time horizon on when you need the money in cash to spend. If you are 65 and retired, you still have 25, 30 or more years to slowly take money out to spend. If your portfolio goes down in value, it has time to recover. Consider the declines of 2008-2009 and the recovery of the following 5 years.
- Stick with your risk tolerance as determined in “normal” times. Don’t make the mistake of so many who increase their risk exposure when the market seems to be doing well and decrease when the headlines scream caution.
- Stay diversified. Proper diversification reduces your risk without a commensurate reduction in return. Don’t think that just because a particular holding (or sector or industry or asset class) has done well in a turbulent market, that it should then be held in much larger portfolio portions. In a properly diversified portfolio, there are frequently holdings doing much better or worse than others.
These three keys are provided with humility and the hope that someone reading them might be encouraged to act in a more healthy fashion with regards to protecting and growing their wealth. Certainly there are many other considerations for investors, but if you start with these three you will be on the road to successful navigation of turbulent times.
Published: February 7, 2014
Authored by: T. Taylor Payne, CPA/PFS, CFP®
Direct Phone: 812-602-6301