While history has shown the market to be resilient, there are times when an investor may be tempted to be too heavily weighted in either stock or bond funds. It’s important to develop a long-term plan with goals and objectives and then stick to the plan in both good times and bad. Staying the course can be difficult, but the U.S. economy has proven resilient through many turbulent time periods. History teaches us that selling in a panic — or letting your emotions drive your investment decisions — is unwise.
To help you make the best choices for your retirement investment needs, GuideStone offers these four tips.
1. Always focus on your objectives, not your emotions.
Specifically regarding retirement participants, these assets are to serve needs for a long period of time. Make sure your objectives and actions are consistent with your time horizon. Participants can periodically review their risk tolerance by utilizing GuideStone’s Investor Profile Quiz, found in the Fund Choices booklet. Participants also can request a copy of Fund Choices by calling GuideStone’s Customer Relations specialists at 1-888-98-GUIDE (1-888-984-8433).
Consider that over long time periods the stock market has been friendly, yielding many more positive returns than negative ones. Industry research firm Ned Davis Research, Inc., looked at stock performance over an 80-year period, 1926 through 2006. What it found was:
- 88% of the five-year periods and 97% of the 10-year periods yielded positive returns.
- 100% of the 20-year periods yielded a positive return.
Essentially, you could choose any five-year period of time between 1926 and 2006, and almost nine out of 10 of them would show growth in an investor’s portfolio.
Source: Ned Davis Research, Inc.
While past performance is no guarantee of future performance, the market itself has been resilient through the years.
2. Avoid making impulsive decisions.
Guard against making ad hoc changes in your portfolio. Making changes based on short-term market movements is almost a guarantee for failure as it promotes “buying high and selling low.”
The performance of your account moving forward will be determined based on results of the financial markets in the future, not the past. Selling today cannot avoid yesterday's losses in a down market. Likewise, in an up market, you cannot buy yesterday's performance by investing in the hottest fund.
If you absolutely have to make changes in your portfolio, consider making them in small increments. This allows you to dollar cost average and gives you time to more seriously consider your actions.
Getting out of the market during roller-coaster rides is seldom a smart move. What happens if you’re out of the market and the market goes up? Consider an investor who invested in an S&P 500® Index fund from January 1985 until March 2007. An investor who parked his money there for all 5,607 trading days would have an average annualized return of 12.8%. That period includes “Black Monday,” Oct. 19, 1987, the tech bubble burst of 2001 and the Sept. 11, 2001, terrorist attacks.
On the other hand, consider another investor who got jittery every time the market pendulum swung from profit to loss. He missed the 10 best days over the course of those 12 years and the average annualized return drops to 10.2%; miss the 30 best days, and the average annualized return is 6.6%. If one misses the 50 best days of market performance, the annual average return drops to 3.7% — barely above the rate of bank certificates of deposits.
Source: Westwood Holdings Group, Inc.
3. Don't count your losses.
Tallying up how much has been lost in your account serves no purpose. If you want to measure the progress/status of your investment account, focus on the gains realized in the equity (stock) markets over longer periods of time.
“It may seem difficult as investors watch their account balances decline, but the reality is that a focused investment discipline, diversification and persistence will likely be the key to weathering this and other storms,” Cummins said. “While lower market prices do cause uncertainty, this can also be an excellent time for opportunistic investors to move into the market while values are off their highs.”
Market volatility and indiscriminate selling of assets by others often creates investment opportunities that can be captured by insightful investors whose long-term financial objectives are properly tuned to long-term investment strategies. Consistent contribution to a retirement plan affords investors a systematic way of taking advantage of investment opportunities as markets ebb and flow.
4. Maintain realistic expectations about market behavior.
Financial markets move up and down over time in response to social, political and economic events. Further, equity investments are by nature more volatile than other asset classes such as cash and bonds. Equity investors should be able to accept significant short-term fluctuations in the value of their portfolios.
“Markets negatively react to uncertainty,” Cummins said. “As situations begin to return to normal, we expect to see the markets stabilize and, if history is any guide, begin to return to profitability.”
Investors may still be confused. GuideStone offers a simplified approach to investing over the long haul.
Many times the demands of ministering to a congregation or preparing three sermons a week leave you with little time to think about how you are going to invest for your retirement. That’s why GuideStone Funds launched a new series of mutual funds, the MyDestination Funds™. These funds are date target or life-cycle funds which are diversified “funds-of-funds” that have an asset allocation that gradually becomes more conservative as you approach and move through retirement. You simply choose the fund closest to your retirement date, make appropriate contributions, and the asset allocation is adjusted to become more conservative as you approach that retirement date. The MyDestination Funds™ may be a smart choice for an investor who desires a simple investing approach, wants professional management with automatic reallocation and is willing to pay an additional expense in order to receive a more comprehensive level of asset management services.
MyDestination Funds™ attempt to achieve their objectives by investing in the GuideStone Select Funds. By investing in these fund-of-funds, you will incur the expenses of the MyDestination Funds™ in addition to those of the underlying funds. You may invest in the Select Funds directly. MyDestination Funds™ are also subject to the risks of the underlying funds they hold.
| An investment in the Money Market Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Although the Fund seeks to maintain a value of $1.00 per share, it is possible to lose money. |