I received my license to sell securities in early 2000 and it seems like my entire career has pretty much been marked by volatile financial markets.{{more}} With that in mind, as I follow a comprehensive financial approach with my clients, one of the first things I do is have an in-depth conversation with them, allowing me to better understand their goals, timeframe and risk tolerance.
As history has shown, markets go through cycles which influence the way we behave. During market upswings, our emotions range from feeling upbeat, to being confident and, finally, to being euphoric. But as markets begin to decline, feelings turn to nervousness, worry, despair, and then to panic. And, just when you sell and claim defeat, you may miss the potential upswing in the market. For many people, in 2008, their emotions went from confidence to panic in about a month. In short, they lost sight of the fact that investments are for the long haul.
Think about the actions of one of the world’s most recognizable and successful investors, Warren Buffet. He pretty much does the opposite of the average investor. He exits the market when it’s really hot and buys heavily when people are afraid to get in. He said, “Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful” *
Diversity is also tremendously important. Within your portfolio and based on each individual’s unique risk tolerance, you may want to have stocks and bonds, but you also want to diversify further within those asset classes by incorporating large, mid and small-sized companies, both domestically and internationally. You may also want to have a nice blend of corporate, municipal and governmental bonds, with varying durations. You may even consider adding an alternative investment, such as a commodity (gold, oil etc.) or Real Estate Investment Trust should it fit your risk tolerance.**
Another strategy that I like to discuss with my clients is dollar-cost averaging. It is a term that many may not be familiar with, but are already doing. By investing a consistent amount on a regular basis, something that most people do within their 401(k), 403(b) or other workplace retirement accounts, you can benefit from market volatility. Your money will buy more shares when the price is lower and fewer when the market is higher.
That brings me to another important point.. Few people can “time the market” or buy in at just the right time. How most people have long-term success is through “time in the market”. It comes as a surprise to many of my clients when they learn that a large part of the markets gains occur in just a few trading days throughout the year. Obviously, in order to capture those gains, you need to be participating in the market. So, if your goal is to invest for the long term, then stay in the market and stay the course.
In short, you want to have an investment plan, adjust the plan when needed, and stay the course. Partnering with an experienced financial services representative to help you do that can give you greater confidence in times of market volatility.
This article was prepared by Patrick Shanley and is not intended as legal, tax, accounting or financial advice. Patrick Shanley is a Financial Services Representative with MetLife, Inc. The opinions provided above are not necessarily those of MetLife, Inc. The opinions provided are for general information purposes only. Metropolitan Life Insurance Company (MLIC), New York, NY 10166. Securities products offered by MetLife Securities, Inc. (MSI) (member FINRA/SIPC). MLIC and MSI are MetLife companies. L0313309469[exp0314][CT]