By Timothy E. Head
The Aug. 24 stock market drop, on the heels of disappointing performance a few days before, led to headlines and some investor concerns. But long-term investors should continue to consider their objectives and time horizons, investment experts say.
David S. Spika, global investment strategist at GuideStone Capital Management LLC, said many observers have expected some level of correction to occur at some point given that markets had been on a long-term growth pattern since the market trough in 2009.
Active management firms, like GuideStone, are thought by many to be better suited for volatile markets, which create more dispersion and lower correlations among stock prices, giving the sub-
advisors a better chance to identify companies that are undervalued, Spika said.
GuideStone President O.S. Hawkins said, “Long-term retirement investors should keep their focus on their goals and not on short-term market fluctuations. Participants should focus on being appropriately diversified, their long-term investment objectives and time horizon and less on day-to-day market moves.”
Four principles
When dealing with a period of volatility, GuideStone recommends keeping four principles in mind:
- Always focus on your objectives, not your emotions. Specifically regarding retirement participants, these assets are to serve needs for a long period of time. Make sure your objectives and actions are consistent with your time horizon. Investors can choose to use GuideStone Advisor’s GPS: Guided Planning Services to assist in determining an age-appropriate investment allocation.
- Avoid making impulsive decisions. “Guard against making ad hoc changes in your portfolio,” Hawkins said. “Making changes based on short-term market movements is almost a guarantee for failure as it promotes ‘buying high and selling low.’”
The performance of your account moving forward will be determined based on results of the financial markets in the future, not the past. Selling today cannot avoid yesterday’s losses in a down market. Likewise, in an up market, you cannot buy yesterday’s performance by investing in the hottest fund.
- Don’t count losses (or gains). Consistent contribution to a retirement plan affords investors a systematic way of taking advantage of investment opportunities as markets ebb and flow.
- Maintain realistic expectations about market behavior. Financial markets in the short term tend to fluctuate in response to social, political and economic events. However, historically the markets stabilize and return to profitability over the long term, focusing on the underlying fundamentals.
“The next few weeks may be choppy for investors, but long-term investors should continue to focus on their objectives and less on the minute-by-minute headlines,” Hawkins said.
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