Monday, September
6 2010
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Monday, September
6 2010
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Announcing a new acquisition!!
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What's New at Forte for the year 2007 May 2007 - Market Volatility Shouldn't Rattle a Good Financial Plan By Forte News Department Market Volatility Shouldn’t Rattle a
Good Financial Plan On Feb. 27
this year, the Dow Jones Industrial Average slid 416 points, the biggest drop
since the market reopened after the 9/11 attacks. By early May, the market had more than made up those losses and
stood at record highs. How did you
react? Did you turn off the news? Did you call your broker in a panic? Or did
you call your financial planner to see if your plan was solid? It’s easy
to succumb to the urge to sell if the market takes a header or buy if it’s
headed upward. But sudden action is usually a mistake. In the late 1980s,
Harvard psychologist Paul Andreassen made news with a research project that
found that people who listened to market news actually made lower returns. Why?
Because those who sold – or bought – during a market swing probably found a day
later that the market was really running on hype, not fundamentals. You pay a
financial planner to devise a financial strategy that matches your risk
tolerance and long-term financial goals. No, there is absolutely no way to
guarantee that you’ll never lose money. But if a plan truly matches you, the
noise level on TV shouldn’t make a difference. So the next time the Dow spikes
or slides, ask yourself: What’s my plan? If you’ve worked with a good
financial planner, you should be able to articulate those goals all by yourself
or refer to an investment policy statement you made together. Much of the
riskiest investing, overbuying and panic selling during the late 1990s and
early 2000s could have been avoided if individual investors had sought advice
for achieving long-term specific
goals such as retirement or a college education. What’s my risk tolerance? At your first meeting with a
planner, you should have discussed – and later filled out – a form asking you a
number of questions about how you handle risk and what your expectations were
about investment returns. You might have had to do this more than once if your
risk tolerance was low but your investment expectations were high – low-risk
investors can’t expect the highest returns.
That’s part of the education process when you visit a planner. Am I prepared to stay invested – no
matter what? We all
remember the “Tech Wreck” of 2000. At the worst of that downturn, investors
bailed out of the stock market or drastically cut back, only to get back in
after they were “convinced” that the market was rebounding. In reality, they missed out on stock market
gains during the early stages of recovery, and that’s costly in the long
run. Of course, some investors looking
for that late 20th century investment high also got into the real
estate market, and they perhaps learned a similar lesson when that market
started heading south two years ago. In
2004, SEI Investments studied 12 bear markets since World War II. Investors who
either stayed in the market through its bottom, or were fortunate to enter at
the bottom, saw the S&P 500 gain an average of 32.5 percent (not counting
dividends) during the first year of recovery. Investors who missed even just
the first week of recovery saw their gains that first year slide to 24.3
percent. Those who waited three months before getting back in gained only 14.8
percent. Am I diversified? The NASDAQ lost 39 percent of its
value just in 2001, and another 21 percent in 2002. Meanwhile, real estate
investment trusts, which performed poorly in 1998 and 1999 when stocks were
booming, had banner years in 2000 and 2001, performed so-so in 2002, and had an
excellent 2003. Bonds also returned well during the bear market. Your planner,
based on your risk profile, should have you in diversified investments that fit
your goals. Do I still feel the same way I used
to about returns? Having a long-term investment plan
doesn’t mean make the plan and leave it to gather dust. You and your planner
should decide when it’s time for a review of your investment goals and your
feelings about them. An annual conversation makes sense if nothing’s going on,
but life events like death, divorce, kids moving out and illness are good reasons
to do a head-to-toe review of a financial plan. May 2007 — This column is produced by
the Financial Planning Association, the membership organization for the
financial planning community, and is provided by David W. Henion, a local
member of FPA | ||||||||||||||
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