It’s no secret that investing is an emotional process. Markets swing and news organizations take full advantage to pump their ratings and incite fear, oftentimes without fully understanding the economy or how markets work.
Even veteran investors can act impulsively and lose perspective when markets correct or become volatile.
All of this said, volatility is normal.
That’s why it’s essential for all of us to consider the big picture during periods of market stress. If you’re contemplating a change to your portfolio, there are two important questions you should ask: 1) have my goals changed, and 2) has my time horizon changed?
For example, are you retiring years sooner than expected? Has your health or family situation changed? Have your expenses in retirement increased significantly? Has your charitable giving been affected?
If you answered “yes” to any of those questions or if there has been any other life-changing event, ask your financial planner or trust officer for guidance.
If you answer “no” to all of those questions, odds are you should stick with your plan. The focus should be on long-term progress, not short-term market movements.
The accompanying chart should provide you with a sobering reminder to the costs of market timing. By missing out on some of the market’s best days, investors can lock in terrible losses and lose out on critical opportunities to grow their portfolio. Six of the 10 best trading days in the market occurred within two weeks of the 10 worst days.
We believe good things come to those who wait. Markets can always have a bad day, a bad week, a bad month, or even a bad year, but history suggests investors are much less likely to suffer losses over longer periods. A portfolio with 50 percent stocks and 50 percent bonds has not suffered a negative return over any five-year rolling period in the past 67 years.
If you’re feeling stressed about the markets, give us a call at 701.235.2002. We’ll help you put the headlines in perspective. We’ll review your financial plan and help you understand the implications of any potential change.