Author: Jennifer Climo
We debated internally whether to write this post. We hesitate to put the focus where it is least important – everyday market swings of your portfolio. As we tell every prospect, and repeat to clients throughout our relationship with them, portfolios can and will decline in value at some point, regardless of investment strategy. Almost always, those with more stocks than bonds will fall the furthest. However, on the flip side, the more stocks in a long-term portfolio, the more growth there will be over time. Historically, every single market dip (or correction or crash), has been temporary in the historic upward march of stock prices. Past performance is no guarantee of future results, but in our experience, the people who have a higher portion of their investments invested in stocks rather than bonds have a higher long-term outcome. One side effect of this is that sometimes (on average since WWII, 1 year out of 5) the market falls an average of 30%. Oh, and don’t forget the average intra-year decline, which is about 14% since 1980. Despite these temporary reversals, the markets recovered and eventually prospered.
So, what happened in yesterday’s markets? A 3% decline. What will happen today? Either it will be up or down. In neither case should you change your investment strategy. You should have an emergency fund in a FDIC insured bank account; have a portion of your investments in lower risk bond funds; and have stock funds other than just US large company stocks. This diversification will reduce the volatility of your investments and give you flexibility if you are taking distributions from your portfolio.
Overall, the biggest impact on your being able to have enough money to retire is your rate of saving and your rate of spending – NOT your rate of return. Take this opportunity to re-evaluate how much you are saving and consider increasing it, and/or re-examine your spending. Not because the market has dipped (although if the market continues to decline this may look like a buying opportunity in hind sight), but because managing your saving and spending has a larger impact on your long-term financial success than trying to ‘time the market’ and predict what will happen tomorrow.
The only people who have truly lost anything when the market dips, are those who sell.