What Not To Do In 2016
With 2016 starting off as a rollercoaster ride for many investors, I thought it would be fitting to put into perspective some things that I have seen in my career and some of my thoughts about what investors should not be doing with their portfolios.
1) DON’T be afraid of rising interest rates – people from every walk of life are telling you interest rates are moving higher. They are making you afraid of not refinancing your mortgage on time or not buying that house you have been looking for. They are telling you your bond will significantly decline. Except, remember two things, they have been saying these things for 5 years now and they have no idea what will happen with interest rates. No one does. Don’t let the fear impact your financial plan.
2) DON’T buy what you don’t know – as the stock markets go up and down people generally look for opportunity or the next big idea. Investors are starved for yield in a low interest rate environment. If you are going to invest in something, let it be something you know. Whether it is a new business idea or a stock in your IRA, know that company. Too often do I hear people who get wrapped up in stocks that trade in hundredths of pennies tell me about how it will explode and they will be multi-millionaires overnight. Remember the old cliché, if it sounds too good to be true, it probably is. Especially in investing.
3) DON’T capitulate – if you have an investment such as gold as a part of your portfolio then you have watched it go from $1,800 per ounce down to about $1,000. That is almost a 50% loss. Having gold or an alternative asset in times of uncertainty is a major stabilizer. It can be what is considered a non-correlated asset. If you have placed non-correlated assets in your portfolio don’t be surprised when they are down or not up as much as your other assets.
4) DON’T draw too much off of your assets – hopefully you’ve had a plan in place and you are at the stage where you are using your retirement savings in conjunction with your pension(s) and social security to supplement your lifestyle in retirement. One problem persists. Since rates have been so low you either lost a tremendous amount of riskless (Treasuries, CDs) interest or you have been forced to take risk that you normally would not, just to chase yield. By taking too much off of your principle you run the risk of draining your account and living longer than you thought with no funds.
5) DON’T try to time the market – the media and news outlets are filling you with fear every time there is a blip on the charts. Remember that we’ve had almost 7 years of positive stock market returns. According to American Funds, stretching back from the year 1900, a decline in stock prices of 10% happens on average once per year . A correction today is absolutely normal. Don’t let it change the plan you’ve put in place with your trusted advisors.
Investing involves risk, including the risk of loss.
American Funds Capital Group (2015). Market Fluctuations [What Past Market Declines Can Teach Us]. Retrieved from https://www.americanfunds.com/individual/planning/market-fluctuations/past-market-declines.html