A large part of people’s retirement savings today is in 401K plans or annuities that may be invested in the equity markets. If you are under 60 years of age, and have a financial advisor, most likely your advisor has recommended that part of your assets be invested in stocks. This is appropriate, as long as your investments match your risk tolerance and needs, both current and future. I am not a financial expert, but having worked at Merrill Lynch & Co. for many years, and building a relationship with my financial advisor over the years, I realize that stocks are an important part of one’s portfolio over the long-term. Being a conservative investor, I was initally very wary of investing in stocks. However, as I review my retirement portfolio over time, I see where the gains and losses are and can see the importance of a stock portfolio.
Stocks will go up and down. If you have invested in stocks, and are now afraid of what’s happening in the stock market, it’s important not to panic. He are some general rules for stock market investing that will help you sleep at night and weather the storm.
1) Beware of “dabbling” in the stock market, and beware of one-off stock tips. If you have a sum of money to invest, you should engage a reputable financial advisor to guide you. The financial advisor should appropriately diversify your stock portfolio, and recommend other investments to keep your savings balanced.
2) Don’t put everything you have in the stock market. Once again, a good financial advisor will recommend a diversified portfolio of bonds, cash and stock, and may recommend various financial instruments that combine stocks and bonds.
3) If you notice that your stock portfolio has been tumbling the last few weeks, contact your financial advisor now to ensure your are not overexposed in these markets. The advisor will give you confidence to hold on, or he may recommend some adjustments to improve your portfolio’s performance.
4) Remember that there are cycles in the financial world. Over the last 30 years of owning stock, I have seen it tank, and then come back full force, and then go down again. Overall, I realized gains in the investment rather than losses. If I needed to or wanted to, I sold when a stock was up, but held on when it was down.
5) Check on your investments regularly. Even though a financial advisor should be in touch with you if changes are needed in your portfolio, you need to keep on top of your investments. Ask questions. Discuss with your financial advisor any changes in your lifestyle, work, or financial goals.
6) Become a little savvy about investments. Get familiar with the markets by reading the financial pages and magazines. Understand what you are invested in and why.
As I write this, the markets have been down 1 to 2% over the last few days, once again reacting to the mortgage woes. Today, after dipping over 300 points during the day, the market actually “recovered” and closed down just 15 points. As a stockholder, things will always fluctuate, but you, together with a good financial advisor, can weather the storms.