Retirement Guys: Five steps to avoid your retirement getting shut downWritten by Nolan Baker Mark Clair | | firstname.lastname@example.org
Over the past couple of weeks investors have grown more concerned about the stock and bond market with all the major news headlines. At one point, America was all but certain to get involved in another war with Syria. The news on war quickly went away when Russia stepped in. Then the headlines quickly moved onto the government shutdown, meaning the government lacks the authority to spend money on nonessential services. Since, according to the government, most things are essential, this is not a big deal.
The big upcoming news that adds more concern to investors is the debt ceiling debate. Hitting the debt limit would mean the government would lack the authority to borrow money to spend. How investors prepare and plan for volatile market times can mean the difference between being in a panic or finding a buying opportunity.
Let’s review the five steps we believe are important to being a successful long-term investor: staying diversified, using adaptive portfolios, getting educated, avoiding daily noise and staying out of the herd.
Stay diversified. That means investors should avoid the urge to move all of their money in or out of one asset class. A variety of different investment approaches are available today, such as stocks, bonds, real estate investment trusts, annuities, and cash, to name just a few. Often times, depending upon an investor’s individual investment goals, it is good to use a variety of these strategies. The goal of being diversified is to reduce risk. Although it doesn’t guarantee against loss, it does allow an investor to take one investment that is performing well and buy another investment that might be trading at a discount. Remember: buy low and sell high, not the opposite. Several different tools are available to help investors determine how diversified they are.
Use portfolios that are adaptive. This was a trait I (Nolan) learned in the United States Marine Corps. The Merriam Webster dictionary definition is to change something so that it functions better or is better suited for a purpose. This adaptive approach to investing can be accomplished several ways. Some strategies have the ability to move to protective position like cash as risk increases. We call this circuit breaker technology that is designed to protect the account before a major loss occurs. Other strategies rotate investment holdings to maintain or capture increases in the predictable cash flow generated by the account. Portfolios that only buy and hold can perform well in the long run, but could be subject to more short-term losses. If an investor isn’t sure if his or her account is adaptive, they should schedule a review with an investment professional.
How does an investor avoid a panic situation with investments? Staying educated is an important aspect of investment success in moderation. Avoid the urge to buy and sell because of the day to day noise of the news headlines. Study after study has shown these results can be costly for the average investor. In fact, not changing current investments may be the best thing an investor can do. The education that can be beneficial is learning about the investment methodology being used in your portfolio. Does the plan make sense and is it customized to your individual goals, objectives, and risk tolerance?
In our August 2013 Economic Summit our topic was “How To Get Prepared For A 30 Percent Drop In The Stock Market.” Maybe you were there, but if not, we focused on the skills investors need to take advantage of buying opportunities. Our discussion involved avoiding following the herd and media basis and instead being in a position to buy when everyone else was selling. Bottom line, forget everyone else; make investment decisions based upon what your individual goals are. Remember the herd and the media is often wrong, so finding opportunities often means not following the pact.
Bottom line, with the debt debate going on, it is important to stay diversified, use portfolios that are adaptive and get educated about your individual investment plan. Avoid the urge to allow the day-to-day headlines to impact investment decisions short-term and stay out of the herd. Following these five steps will help the average investor avoid making a panic investment decision. If an investor can avoid being in a panic, they can instead look for opportunities along the way and enjoy a more relaxing retirement.
For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit www.retirementguysnetwork.com. Securities are offered through NEXT Financial Group Inc., Member FINRA / SIPC. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537.