As Markets Ride, Avoid Emotional Investing Decisions

By Jon L. Ten Haagen

asktheexpert@longislandergroup.com

 

Let’s take a pause from our basics of investing this week and focus on the stock markets indexes.

As you have probably noticed the ‘markets’ (Dow Jones, S&P 500 and others) have been jumping all over the place for the last few weeks. Have you noticed that since 2009, almost no one has had a problem with the markets? That is because they have basically done nothing but go up. Now everyone is concerned and is an expert on the movement of the markets! These markets are being moved by problems in Greece, the economic downturn in the Chinese markets (they were up more than 100 percent over the last year, so due for a correction/adjustment), a fall in oil prices – which are at around $40 a barrel, down from over $140 a few years ago – and a stalemate in Washington, D.C.

The roller coaster nature of the markets may cause you to react in ways contrary to your portfolios best interests. While market downturns often cause investor anxiety, they may be opportune times to buy quality investments near the bottom of the market decline (that is what we are supposed to do: buy low and sell high! Keep emotions in check by referring back to the time when your emotions weren’t running so high when you did your mission statement that includes your goals and the plan to reach them.

The markets have gone up and down since before 1900 and they continue to do so. Markets are moved by many things. Geopolitical events (Greece), currency adjustments and manipulations, GDP, companies becoming stronger and weaker at certain times, and some which go out of business, depressions, recessions and many other factors. Bottom line is to ask yourself, “How much time do I have to be in the market?”

If you are buying a house or anything that you will need your money for in the next three to five years, do not be in the market. Keep your money in “safe” vehicles. If you will need the money in 15 to18 years for education purposes, then you have to be “in” the markets to find growth of your assets. Just be sure to pay attention to these investments and reduce your exposure slowly to the stock markets as you get closer to needing these funds.

If you are looking toward retirement in 20, 30, 40 years or more, you must be invested in the stock market. Again remembering to move some of your market exposure to less volatile investments such as fixed income vehicles as you get closer to the time of need. Be very aware that at retirement you could well have 20 to 30 or more years of life expectancy, so you still need your funds to grow to offset inflation and taxes and keep your money at a level, which will give you the income you will need for a comfortable retirement.

As you can see, there are many moving parts to managing a good investment portfolio. You may be one who wants total control of your portfolios. However, do you have the time, desire and knowledge to do this properly? It is a decision you must make. You can always change your mind and the company overseeing your future!

Emotional investing is rather a bad habit. Kicking it is not easy. Your financial advisor should be holding your hands and helping you focus on your long-term goals by discussion of what you can control, such as the amount of money you invest on a regular basis. Don‘t forget the opportunity of an IRA or Roth IRA. Resist the urge to react to the ‘round-the-clock financial headlines. Emotions have a place in our lives, but not when it comes to investing. Professional help may be the best way to ensure logic and strategy outweigh emotion in reaching investment decisions.