This time of year often allows us to work on our “honey do” list. It’s a great feeling to get one or two of those tasks done. Often, our retirement “to do” list is the one list that is put on the back burner in order to handle more time sensitive issues. We recommend taking this time to review your retirement “honey do” list now before it’s too late.
Today, we would like to answer the questions you might have about the recent market uncertainty and give you additional advice on what you as an investor should be doing.
Is the recent volatility in the stock and bond market normal? The simple answer is yes. For a long time, we have been recovering from the 2008 crash. Although recently, the market continued to rally, at some point the markets will go down. That decline could be short-term, go all summer or it could get worse if economic conditions change. How the average investor reacts to those changes can have a dramatic impact on their individual results. Remember to buy low and sell high. Don’t let short-term results impact your long-term decisions.
Is your current portfolio on track? All investors want their accounts to go up in value every day. And yes, we would agree performance is an important part of a successful long-term portfolio, yet we feel this should not be the first or only factor an investor looks at. Comparing individual performance to others can encourage an investor to chase results which can be a costly mistake. Forget everyone else and focus on your individual goals and objectives. If the objective is to produce a certain amount of income a year and that goal is being met, don’t worry too much about the day-to-day noise of the stock market. Make sure there is a very specific goal and objective for each investment account.
Are you taking too much risk? Often times we hear investors say things like, “I lost 5 percent; if I keep losing that same amount before long I’ll be out of money!” Instead of trying to figure out this math on how long the money will last, focus on what risk level you are comfortable with when you look at the total plan. We call it a stress test. Review the risk by looking at the total plan, not just individual holdings. At any given point it is not uncommon for one part of the portfolio to be doing well while the other part is doing poorly. Emotions could lead you to sell the “losers” and buy the “winners.” Remember, this can lead to chasing results and possibly increase risk. Although it does not guarantee against loss, diversification is a strategy that can help reduce risk.
Why has the stock and bond market been so volatile lately? In our opinion, several factors are making the market unstable. Interest rates have dramatically increased in a very short period of time. A few weeks ago 30 year mortgage rates were close to 3.25 percent. Now according to www.bankrate.com they have skyrocketed to 4.53 percent. This shock to the system has had an impact on most investments that were sensitive to interest rates. The stock market needed to take a breather as well. We had gone almost a year and a half since that last single-day decline in the stock market like what occurred June 20.
Risk of default is another concern among investors. Right here in our backyard, the City of Detroit is on the verge of bankruptcy. That would make it the largest U.S. city in history to file bankruptcy. Take all of these factors and combine them together and it makes for a bumpy ride in the economy.
If you haven’t reviewed your investment plan in a while, aren’t sure if the objectives are still on track or don’t know how much risk is in your plan, then schedule a review with a licensed investment professional right away and go through your “honey do” list. This could be the most important decision you make this week.
For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit www.retirementguyradio.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. does not provide tax or legal advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. (419) 842-0550.
