U.S. Stocks plunged last Friday and the sell off continued Monday with the Dow Jones Industrial Average suffering a 1175 point drop – its biggest one-day point drop in history. The market gave back its 2018 gains with a flash-crash-style drop, before a late rally and partial recovery on Tuesday. This roller coaster week has investors itching to make big changes in their retirement portfolios.
HOWEVER, It’s never a good idea to react to headlines or short-term movements in the market. You are invested in the stock market because you want to accept some risk in order to receive an acceptable return. That means weathering the movements in the short-term. The stock market is still in midst of a 9-year bull market. The S&P 500 spent the last 200+ days within 3% of all-time highs, with no correction, and gained over 22% in 2017.
STOCKS DO NOT GO UP FOREVER. Whether or not you believe this was a normal correction, or there is something else behind this, it CANNOT change your overall retirement plan.
There are going to be headlines and economic drivers that factor into the market. This time it’s interest rate and inflation fears, yet the overall economic data is strong. Your retirement plan should be based on RISK…how much risk can you accept, and what can you expect in return for that? Manage your risk and overall allocation, not the headlines of yesterday or tomorrow. After all, if this makes you want to GET OUT NOW, then when will you GET BACK IN? You have to be right….TWICE.
HERE is what you should do…focus on why you are investing in the first place and remember your long-term goals. Make sure your portfolio allocation matches your risk tolerance. Rebalance your portfolio when needed to bring back into alignment with your long-term plan. Keep investment costs low and stay diversified.
KEEP the above principles at the forefront of your investment philosophy, so you will be positioned well in volatile times. The key is NOT to PANIC! Click on the video below from cnbc.com with tips on riding out a wild market!