By Gary Meeks, RICP®
If you have investments in mutual funds, stocks, IRAs or a 401(k), you have probably noticed 2018 has been an up & down year. The markets have been volatile. The US economy has been in an economic expansion since 2009. That’s ten years of economic growth and positive returns for the S&P 500. By historical measures this stock market run is a little long in the tooth. Trade tensions are high right now and the Federal Reserve has been raising interest rates, so it’s no surprise to see stock market volatility.
What’s an investor to do? I have a few suggestions or reminders:
Don’t Panic! During times of market volatility the talking heads on the financial cable news channels can make you feel like the sky is falling. You are also likely to hear all kinds of differing advice delivered right from your TV without regard to your personal situation. Some of the worst financial decisions are emotional ones, so don’t panic! Consider the following:
Make sure your investment portfolio is suitable for your personal situation. How do you do that? Here are some things to consider:
Determine your investment time horizon: When will you need the money? Generally if you don’t need the money for several years, I would say 10 years or more, you can afford to be more aggressive with your investments and you should not be too concerned about short term market drops or corrections; however if you are retiring in the next 5 years and plan to start drawing income from your investments, you should consider being more moderate or conservative with your investment portfolio. As you get nearer to needing your money or drawing income from it you should consider taking less risk. These are general investing ideas and individual situations may vary.
How do you feel about risk and return? It is important to remember risk and return go hand in hand when it comes to investing. How much fluctuation in your portfolio are you comfortable with? How much return to you need or desire from your portfolio? lf you can’t sleep at night because you are worried about how much your account value fluctuates, you should consider reducing your risk. If you desire higher returns you should be prepared to accept more volatility/fluctuation in your portfolio.
Are you diversified? A properly diversified portfolio should have allocations to different asset classes and should include investment assets that are not positively correlated. With investments, this means that one asset class normally doesn’t act the same way as another during certain market conditions. Example, when owning stocks and bonds, often when stocks are declining, bonds may be increasing in value or holding steady. This provides stability to your portfolio. Other asset classes that may provide diversification include Real Estate, Commodities, International stocks and bonds, and cash and money market instruments. All these asset classes provide diversification and may also provide reduced volatility. Asset allocation, which is based on complex mathematical models, should not be confused with the much simpler concept of diversification. Both aim to help reduce volatility and risk but neither guarantee future performance.
Take advantage of opportunities: The billionaire investor Warren Buffet once said, “We simply . attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Source: lnvestopedia, 2004 annual shareholder letter. I take this to mean, look for buying opportunities when everyone else is selling and in a panic and be careful when everyone else is buying.
Seek Professional Help: Reviewing your goals & objectives is important. A qualified financial professional can help you access your time horizon, risk tolerance, portfolio diversification, and help you build a portfolio that is suitable for you.
Gary D. Meeks, RICP®, is a registered representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC, a broker dealer and Registered Investment Adviser. Cetera is under separate ownership from any other named entity. 90 W 100 N STE 6, Price, UT 84501 (435)-637-8160.
The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. Investors can not invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.