You’ve undoubtedly watched the financial media circus for the past decade. You can recognize the electronic players by the volume of their voices and the print members of the group by the breathless tone of the prose as they promote little-known stocks with a not-so-subtle implication that if you don’t buy them now, you’ll be missing the only chance you’ll ever have for instant riches.
Savvy investors don’t waste time with the televised, Internet and newsletter pitches that replace sound investment advice with hyperbole, but some observers do worry that it is becoming increasingly difficult to separate the genuinely useful information from the deceptive. In reality, instant information can’t always be summarily dismissed.
No matter how it’s delivered, news that one of the high-dividend payers you’ve been counting on for retirement income has slashed its payout due to financial difficulties can be useful. After due consideration, you might want to make some changes. On the other hand, to act precipitously on “spot news” that a solid company in which you have invested for the long term has missed Wall Street earnings projection by half a point (and the stock has immediately swooned), can be long-term foolish, especially in volatile markets such as those of the last two years.
Essentially, investors know that short-term market moves should not be signals to act, yet the volume and insistence of the repetitive 24/7 news cycle tend to subvert that wisdom. Your solid company’s earnings shortfall for one quarter may be nothing but a barely unnoticeable blip in its overall profitability, but after you hear about it 20 times, it may be difficult to ignore.
If you don’t follow the markets closely, all this quick news is irrelevant. If you do follow the daily ups and downs of various market indices, perhaps the wisest course is to pay passing attention to the financial news of the day without letting it influence your long-term investment decisions.
If the past few years are any indication – and many investment professionals believe they are – higher stock market volatility is likely to be with us indefinitely. High-frequency trading, an uncertain economic environment, and the proliferation of new investment vehicles are among the factors contributing to more frequent swings in the market averages.
While higher volatility isn’t a reason to abandon equities, retirees do need a strategy that will help them remain calm despite the market’s gyrations. A well-diversified portfolio is imperative, because fluctuations in one asset class may be balanced out by changes in another. You also need to have a real handle on your tolerance for risk – ask yourself if you can deal with a 20% decline in your portfolio. If the answer is no, you may need to change your asset allocation.
What may be the best suggestion of all – and it doesn’t cost anything – is simply this: Don’t check your portfolio value too often. Some experts advise reviewing your holdings once a month; some would say once a quarter is plenty. Although past performance may not be indicative of future results, remember, despite wars, recessions, scandals, and various other events over many decades, the long-term price trend of U.S. equities has been up and stocks have rewarded patient holders quite well.
Article provided by Raymond James for use by its financial advisors.
It has been provided to Suburban Living by the Raymond James Holly Springs office of Robert W. Volpe, CFP® and J. Phillip Passey
Asset allocation and diversification do not guarantee a profit or protect against loss.
