Keep a Cool Head When Markets Get Volatile: Financial Advisor Offers Three Tips to Help Investors Deal with Stock Market Conditions
As any investor knows, investing in the stock market over the past year has been like riding a roller coaster - with some gut-wrenching drops like the Dow's 326-point slide in late January 2008 followed by highs, like the 298-point rise the same day. That roller coaster ride has tested even the most stoic of investors, but those with a professionally prepared, long-term financial plan most likely have fared better than most do-it-yourself investors.
Irvine, CA (PRWEB) April 8, 2008 - As any investor knows, investing in the stock market over the past year has been like riding a roller coaster - with some gut-wrenching drops like the Dow's 326-point slide in late January 2008 followed by highs, like the 298-point rise the same day. That roller coaster ride has tested even the most stoic of investors, but those with a professionally prepared, long-term financial plan most likely have fared better than most do-it-yourself investors.
According to Arthur Cooper, an independent financial professional based in Irvine, investors should continue to ride the stock market. "I advise my clients to remember that their investments should be long term," says Cooper. "The volatility in the market and specifically the nail-biting lows being experienced are temporary. In these times it's difficult for investors to remember that wealth is built not by timing the market, but time in the market."
Buy Low, Sell High
Cooper believes that a down market, such as the one experienced in January of this year, provides an opportunity for investors. "This can be a textbook example of buying low and theoretically selling high at some point in the future. The short term painful periods are the price we must pay for the potential for long-term gains that come from investment in the equity markets," says Cooper. Research shows that over time, the equity markets have outperformed many other asset class. The biggest risk for investors is not being in the market, but being out of the market. When the market snaps back, it will likely be fast and offer little time for the investor to make changes quickly enough to take advantage of those changes, Cooper says.
Retirees Should Keep the Faith in their Plan
Retired investors or those nearing retirement are feeling especially concerned by recent market volatility. But the same idea applies to them. According to Cooper they should review their financial plan with their trusted financial advisor for reassurance that their assets are properly allocated to allow them to ride out the market turbulence. Cooper believes the market will come back, and investors should stay in the market to take advantage of the coming upswing.
Think and Act Long Term
A long-term financial plan can bolster your logic when your emotions want to take over. Its greatest strength lies right within its construction. A good financial planner can develop a customized plan based on your personal situation, including your goals, your age, your assets and income, your liabilities and your tolerance for risk. Faced with volatility and the emotional desire to flee the pain of market losses or increase the euphoria of market gains, your financial planner takes you back to the plan: Has anything changed about your personal situation as a result of the market? If not, there's no reason to change the plan.
"That's not to say that financial plans should be created in a vacuum and then shoved in a drawer to be dusted off in 10, 20 or 30 years when you retire," says Cooper. "An investor's financial planner should get together with him or her at least annually or whenever a life-changing event, including birth of a child, an empty nest, retirement, divorce or widowhood, illness or disability or death of a spouse, parent or child occurs."
Market swings make headlines because they reflect change. The market can be up hundreds of points one day only to be down the same amount the next day. Cooper believes that trying to guess which way it will go on a given day, week, month or even year is a fool's game that plays to your emotions.
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