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Riding the Stock Market Roller Coaster




 By Bob Payne, Managing Director and Chief Investment Officer (CIO)

Stock market fluctuations represent a major potential pitfall in retirement. As a result, sometimes investors go into “preservation mode,” where their sole focus becomes trying not to lose any money. I remember when my kids were growing up, I used to take them to a lot of amusement parks and the really exciting rides had signs warning about how you would be flipped, spun, twirled, dropped or tossed. Some spun to the point you could hardly stand and others dropped so suddenly it felt like your stomach got left behind. Those same descriptions sound a lot like the market since the beginning of this year. But just like with a roller coaster, you’re more likely to get hurt if you try to get off the ride while it’s still operating.

Three Keys:

Stock market fluctuations represent a major potential pitfall in retirement

Investors need to accept dramatic price changes, both on the upswing and downswing

Focus on an investment process

Since 1926, data shows the stock market has dropped by 10 percent or more on 28 different occasions. But if everybody eliminates their equity portfolio each time the market drops 10 percent, they’re never going to have any money in investments. Because when you try to step aside a market decline, it’s really a two-step process. Number one, you have to determine when to sell. And number two, you have to figure out when to buy again. So what I say to clients is, I’m not going to tell you to panic out because I don’t know anybody who can tell you the right time to panic back in.

Let’s face it – dramatic changes and security crises are scary. But you know what? They’re also a sign that the financial system isn’t broken, and rather that it’s working properly. We live in a very uncertain world. The role of securities markets is to reflect new developments, both positive and negative, and they incorporate into stock prices as quickly as possible. So as investors, we have to accept dramatic price fluctuations, both on the upswing and downswing. That means we need to guard against becoming frightened or confused. The key is to implement an investment process that’s likely to bring long-term positive results.