How to survive the rough market
Wall Street has had a rough go this year, but investors can expect bigger returns by waiting to pull out of the market rather than selling now.
Bull and bear statues are pictured outside Frankfurt's stock exchange in Frankfurt, Germany (December 17, 2015). Making smart financial choices early on can lead to bigger yields down the road.
Ralph Orlowski/Reuters/File
Last year saw some rough sledding for investors: Emerging markets, commodities and gold were way down, as were eight聽of the nine domestic equity categories Morningstar tracks. This year hasn鈥檛 been much better.
This may make some investors聽feel anxious and question聽their strategies, but now is not the time to think about an exit plan.
The danger of 鈥榯iming the market鈥�
Recently, I talked聽to a man in his 60s who鈥檇 decided he couldn鈥檛 afford to lose more money. He was in a balanced fund 鈥斅燼 mix of stocks and bonds 鈥斅燼nd wanted to move his money into more conservative fixed accounts until the market got better.
I asked if he鈥檇 do聽this if the market were on an upswing. 鈥淥f course not,鈥� he said. 鈥淏ut at this rate I鈥檒l be out of money before I鈥檓 out of time!鈥�
I told him I鈥檝e never known when to get into high-yield bonds, cash, gold, U.S. blue chips, and so on,聽and I certainly don鈥檛 know when to get in and out of the market. In fact, I鈥檝e never met anyone who has.
But I do have an investment policy statement that dictates how聽I should work聽to meet long-term goals, rather than reacting to the market.
He shrugged his shoulders, thanked me for my time, and went on his merry way, intent on moving his money and taking a loss.
There are many investors like this, who end up shooting themselves in the foot because they pull out of the market during lows and buy in during highs. They invariably , because they overreact to temporary moves and don鈥檛 take advantage of the market鈥檚 steady upward trend over time.
Here are a few tips to ensure you are taking the long view and making decisions that will pay off.
1.聽Ignore talking heads
Nobody knows the perfect investment strategy聽or聽where the market will be at the end of the year. Resolve to disregard talking heads shouting predictions through the TV screen.
2. Wait to聽withdraw
Many people let the market scare them into withdrawing money too soon. Rather than dumping equities when they聽lose聽value, take a policy-driven approach to investment. This plan should be based on your cash flow, job security, age, current financial situation, risk tolerance and goals.
3. Seek聽professional聽advice
Speak to a financial advisor about your short- and long-term goals, so that they can make sure you have money when you need it. This includes聽carefully developing a retirement savings strategy that takes into account your life stage, the tax implications of various retirement accounts, and asset allocation 鈥� which should change over time as you approach retirement.
Ultimately, long-term investment results are driven by the decisions we make over the course of a lifetime, more than a particular聽stock, bond, fund or manager. Patience and calm decision-making in the context of a well-defined plan, and聽reasonable expectations, will keep folks in good stead over the long haul.
is the chief executive of wealth management firm in Farmington, Conn. This article first appeared at .