With the wild swings in financial markets, how concerned should you be about your investments?
First, remember that any money you expect to need within the next five years should never be invested in the stock market!
This is not like the 2008 financial crisis. It’s been an 11 year bull market so too many investors have forgotten that stocks fall as well as rise.
If you panic and sell stocks now you are locking in “paper” losses. Remember buy low and sell high?
Now is a good time to stuff some money into your IRA, 401(k) or other retirement/long term goals accounts.
While the long term trend in the stock market is upward, short term ups and downs come unexpectedly and dramatically. If you choose to cash out and expect to wait until the investing news is good again… you’ve missed our on dramatic short term increases. You will have sold at a low point (locking in losses) and bought again at high prices, missing out on the benefits of long term stock investments.
So don’t panic!
Now is a good time to reassess your tolerance for risk (volatility) and consider your time horizon. It is appropriate to invest in stocks for the long run and have shorter term (less than 5 year) money in more conservative investments or online savings accounts or CDs. Research confirms that investors’ risk tolerance (as they perceive it or as shown by risk questionnaires) is high during bull markets and plunges during bear markets.
Are you diversified within and across asset categories? Low-cost index funds are the way to go, both for stocks and bonds and domestically and internationally.
Review historical rates of return from various stock/bond allocations at:
Source: Financial Planning for Women