Financial Planning and Market Decline
What should you be doing?
At times like these in the markets, people tend to forget why they invested in the first place. Granted, it is pretty scary when the money you were counting on for retirement, education, or your home is rapidly declining in value. However, as we have cautioned all along-please don't panic. Here are some tips to help you survive the current downturn:
1. People are living longer
Men who reach the age of 65 nowadays have a 49 percent chance of living to 86. Women will have a 49 percent chance of reaching age 89. With that in mind, it's obvious that you still need equities (stocks and stock mutual funds) to help you increase your portfolio and keep ahead of taxes and inflation. Do not abandon these investments. You invested to ensure that you would not run out of money during the years you need income. You cannot accumulate that kind of money in a bank account.
2. Rebalance when necessary
Take a look at your portfolio winners and rebalance into investments that have fallen. As an example, if we had targeted, say 20 percent, in international investments and this is now 30 percent of your portfolio, sell enough to bring it back down to 20 percent. Use that cash to invest in another sector that is part of your portfolio but is being attacked by the market. Remember that you don't have a realized loss until you sell. Take just enough of a loss to offset the gain that you made, and you will pay minimal to no tax on the transaction. It also helps you to stick to the adage of investing-buy low, sell high.
3. Diversify
Don't have any winners? Then you have to question the extent of your diversification to begin with. You should have enough in each asset class (large-cap, mid-cap, small-cap, international) and each style (growth, value, blend, balanced) to create an investment plan for the return you need with the risk you are comfortable with, and in the time period that you targeted. Managed money programs help you to diversify and, believe it or not, some mutual funds have kept their returns higher than their respective indexes this year.
4. Make decisions now
Act now. Do not look for bottoms. You never know where the bottom is but you do know that equities are steadily getting cheaper and there are some fantastic buys out there. You may not have control over the market but you do have control over what you buy and sell. Don't wait until the market starts to rally-by the time you act, it could be all over.
5. Investing is about income for life
The real reason we invest is to turn investments into eventual income to supplement other forms of income at retirement. Based on the events of the market, you may need to re-establish your long-term retirement projections. You might have to temper your spending habits to make up for the loss, but it is better to be prudent and save too much rather than not enough.
We leave you with the following quote from Dr. Marc Faber:
"Investor reaction to falling prices doesn't seem to change. A bad experience leads them to back off and to avoid the entire asset class in which they have lost money. They continue to avoid it, no matter how good its value becomes."
Do not lose this opportunity to arrange your portfolio to meet your future needs. Follow these five steps and you won't have to worry about stock market antics.
At times like these in the markets, people tend to forget why they invested in the first place. Granted, it is pretty scary when the money you were counting on for retirement, education, or your home is rapidly declining in value. However, as we have cautioned all along-please don't panic. Here are some tips to help you survive the current downturn:
1. People are living longer
Men who reach the age of 65 nowadays have a 49 percent chance of living to 86. Women will have a 49 percent chance of reaching age 89. With that in mind, it's obvious that you still need equities (stocks and stock mutual funds) to help you increase your portfolio and keep ahead of taxes and inflation. Do not abandon these investments. You invested to ensure that you would not run out of money during the years you need income. You cannot accumulate that kind of money in a bank account.
2. Rebalance when necessary
Take a look at your portfolio winners and rebalance into investments that have fallen. As an example, if we had targeted, say 20 percent, in international investments and this is now 30 percent of your portfolio, sell enough to bring it back down to 20 percent. Use that cash to invest in another sector that is part of your portfolio but is being attacked by the market. Remember that you don't have a realized loss until you sell. Take just enough of a loss to offset the gain that you made, and you will pay minimal to no tax on the transaction. It also helps you to stick to the adage of investing-buy low, sell high.
3. Diversify
Don't have any winners? Then you have to question the extent of your diversification to begin with. You should have enough in each asset class (large-cap, mid-cap, small-cap, international) and each style (growth, value, blend, balanced) to create an investment plan for the return you need with the risk you are comfortable with, and in the time period that you targeted. Managed money programs help you to diversify and, believe it or not, some mutual funds have kept their returns higher than their respective indexes this year.
4. Make decisions now
Act now. Do not look for bottoms. You never know where the bottom is but you do know that equities are steadily getting cheaper and there are some fantastic buys out there. You may not have control over the market but you do have control over what you buy and sell. Don't wait until the market starts to rally-by the time you act, it could be all over.
5. Investing is about income for life
The real reason we invest is to turn investments into eventual income to supplement other forms of income at retirement. Based on the events of the market, you may need to re-establish your long-term retirement projections. You might have to temper your spending habits to make up for the loss, but it is better to be prudent and save too much rather than not enough.
We leave you with the following quote from Dr. Marc Faber:
"Investor reaction to falling prices doesn't seem to change. A bad experience leads them to back off and to avoid the entire asset class in which they have lost money. They continue to avoid it, no matter how good its value becomes."
Do not lose this opportunity to arrange your portfolio to meet your future needs. Follow these five steps and you won't have to worry about stock market antics.
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