October 16, 2014
The stock market headlines have been unpleasant over the last week. Every day when the market closes it seems we have fallen another 2% and in fact we are down 10% in the last month. The risk of investing in the stock market is that it sometimes has a high short-term volatility. This has certainly been proven true in the last few days. However we do not invest in the stock market for next week's needs. We invest for our needs over the next 5 to 20 years or more. And over the long-term, the stock market has been a much better place for your money than investments like bonds or cash equivalents.
A financial plan takes into account a person's long- and short-term needs. Short-term needs are usually covered by safer and less volatile investments. For your longer-term needs, you generally invest in assets that have a higher potential for long-term returns even though there can be some painful volatility along the way. The fact that the stock market has fallen over the last week does not change your objectives and long-term plan. Additionally, a diversified portfolio will have fallen much less than the overall stock market due to the fact that some assets, like high-quality bonds and REIT funds, have risen in the last week.
Analyst will debate whether the stock market drop is based on valid changes in fundamentals or not. Sometimes fear just takes over and everybody fights to get out of the market at the same time causing prices to drop quickly, even though there may not be real reasons for the market to suddenly fall. Nobody knows where the market goes over the next week or month or year. The only thing we know is that if we sell our stocks today then we lock in a 10% lower price then if we sold a month ago. We might do this because we worry that the market will continue to fall. Others are happy to invest cash in this market because they get to put their money to work at a price that is 10% lower than if they bought it last month. But as stated above, if you have a financial plan, then you are currently invested in a manner that is appropriate for you, except that your allocation to stocks, bonds, cash and other assets may have changed slightly on a percentage basis because of the respective moves within each asset class.
I am happy to discuss the market volatility with you further.
- Larry Pike, CFA, Client Priority Financial Advisors LLC
- www.clientpriority.com
The stock market headlines have been unpleasant over the last week. Every day when the market closes it seems we have fallen another 2% and in fact we are down 10% in the last month. The risk of investing in the stock market is that it sometimes has a high short-term volatility. This has certainly been proven true in the last few days. However we do not invest in the stock market for next week's needs. We invest for our needs over the next 5 to 20 years or more. And over the long-term, the stock market has been a much better place for your money than investments like bonds or cash equivalents.
A financial plan takes into account a person's long- and short-term needs. Short-term needs are usually covered by safer and less volatile investments. For your longer-term needs, you generally invest in assets that have a higher potential for long-term returns even though there can be some painful volatility along the way. The fact that the stock market has fallen over the last week does not change your objectives and long-term plan. Additionally, a diversified portfolio will have fallen much less than the overall stock market due to the fact that some assets, like high-quality bonds and REIT funds, have risen in the last week.
Analyst will debate whether the stock market drop is based on valid changes in fundamentals or not. Sometimes fear just takes over and everybody fights to get out of the market at the same time causing prices to drop quickly, even though there may not be real reasons for the market to suddenly fall. Nobody knows where the market goes over the next week or month or year. The only thing we know is that if we sell our stocks today then we lock in a 10% lower price then if we sold a month ago. We might do this because we worry that the market will continue to fall. Others are happy to invest cash in this market because they get to put their money to work at a price that is 10% lower than if they bought it last month. But as stated above, if you have a financial plan, then you are currently invested in a manner that is appropriate for you, except that your allocation to stocks, bonds, cash and other assets may have changed slightly on a percentage basis because of the respective moves within each asset class.
I am happy to discuss the market volatility with you further.
- Larry Pike, CFA, Client Priority Financial Advisors LLC
- www.clientpriority.com
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