The first few weeks of 2016 have demonstrated significant volatility in the major market indexes, such as the S&P 500, the Dow Jones Industrial Average, and the MSCI EAFE. This has been difficult to miss for many investors, as headlines on the news, in the newspaper, and online were quick to point out the rough start to the year for many indexes, stocks, and mutual funds. As is often the case, these headlines created fear and panic among many investors, as they began to fear another “2008”.
Behavioral finance teaches us that headline risk can quickly have an impact on stock prices in a down market, as fear can cause emotional investors to sell what they have and move to something more stable. What’s important to remember is that your retirement portfolio, if designed correctly, has been set up to weather these dips in the market. This means that, if your portfolio allocation is driven by your risk tolerance, you have already indicated that you are comfortable or uncomfortable with certain risks and scenarios. As a result, you shouldn’t give into emotion and sell what you have after the market has already fallen – you should stay put with your investments, or if you are a more aggressive investor, use the dip in the market as an opportunity to buy more shares at a reduced price.
DirectAdvisors consistently preaches a long-term, buy-and-hold strategy for your retirement portfolio. Your retirement investments are designed for the long-haul, and shouldn’t be used as a day trading account. As mentioned earlier, your portfolio allocation should be driven by your risk tolerance, which is influenced by many factors, especially your time horizon. This approach will result in a better long-term result than trying to time the market. To read more, please here for an article by Suzanne McGee of The Guardian.