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Market declines are weighing heavily on investors’ minds.
Between coronavirus fear and election year uncertainty, there are many unknowns, which often translate into insecurity when it comes to investing. That’s when it’s most important to remember market declines are part of investing.
Following the 2008 financial crisis and market low in March 2009, this has been the longest “bull market” (when prices are rising or expected to rise) run in history. We typically see a decline of 5% or more about 3 to 4 times a year. And often, there’s a 10% decline once a year.
Whenever there is a major disruptive event, such as the coronavirus or the approaching U.S. presidential election, we usually see more volatility in the markets. It’s understandable. People are nervous. And when an economy like China’s is hit hard, it tends to affect the rest of the world.
Fear of losing money is normal – especially when your life savings and retirement are on the line. In fact, Daniel Kahneman, a Nobel Prize-winning psychologist and economist, reported that people actually feel the pain of losing money more than they enjoy the gains.
As wealth advisors, it’s our job to help take the emotions out of investing by trying to help maintain your focus on your long-term goals and plans. Exiting the market when it drops and entering when stocks rise is a natural investor tendency, but neither benefits your long-term plan.
It’s important to focus on time in the markets as opposed to timing when to invest or get out
While there are no guarantees when it comes to investing, 2 simple steps can help you maintain focus on your goals and plans rather than market uncertainties:
1. Dollar cost averaging
Investing is all about setting up a plan, being persistent and making sure you stick to it. One way to do this is by investing a fixed dollar amount on a regular basis, regardless of market fluctuations. This way, when prices are lower, you’ll be buying more shares, and when prices are higher, you’ll be buying fewer shares. On average, you should pay less overall per share when you stick to such a plan. This is known as dollar cost averaging.
Making sure your portfolio is diversified means properly spreading your investments out across different asset classes. It’s important to remember that diversification does not guarantee success or that you won’t see declines in your portfolio. Ups and downs are part of investing, no matter what. Diversification tends to lower some of that volatility, so you’re less likely to experience extremes lows or highs as much.
Even once you’re near or in retirement, setting a goal and sticking to your plan is an important strategy. If you’re on a plan where you receive a distribution of a certain amount a month, remember that you’re only taking out a small amount at a time – not everything at once. So try not to worry about the short-term effects an economic disruptor might have on your portfolio.
You’re not just developing a financial plan until you retire. You’re planning for your entire lifespan. Before retirement, your plan focuses mostly on saving. Once you retire, that plan includes how to spend your money. Working backwards, we factor in the lifestyle you would like and how much money you will likely need to maintain that lifestyle.
Ryan Johnson, VP | Wealth Advisor
LOCATED AT BELL BANK
5680 23rd Ave. S. Suite 101, Fargo, N.D.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk, including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker/dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Bell Bank and Bell Investments are not registered as a broker/dealer or investment advisor. Registered representatives of LPL offer products and services using the name Bell Investments, and may also be employees of Bell Bank. These products and services are being offered through LPL or its affiliates, which are separate entities from and not affiliates of Bell Bank or Bell Investments. Securities and insurance offered through LPL or its affiliates are:
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