Ask Joan
Week of April 11, 2008 • Previous Question ArchiveMs. Sabella has managed MainStay Balanced Fund since its inception in 1989. She is a Managing Director and has been with NYLIM since 2000. Prior to that, she worked at Towneley Capital Management, Inc. for 22 years. Ms. Sabella is a member of the Financial Planning Association, Financial Women's Association, and the CFA Institute. She holds a B.B.A. from Baruch College, is a Certified Financial Planner, and is a Chartered Retirement Planning Counselor.
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Q: With the stock market’s recent volatility, what do I invest in for the future?
A: I am glad that you mention the word “recent” in your question. Investors need to understand that this is part on an economic cycle that has happened many, many times in the past and will continue to happen in the future.
With that said, what is best to do in these times is to tune out our media “noise”, put the market swings in perspective, stick to your personal investment strategy and maintain a long term outlook.
We have to remember that television and radio personnel (and their writers) are not getting paid to sound ho hum. They want to grab your attention and the way they do that is by dramatizing the state of the current market. “What do I invest in for the future?” The operative word here is the future. We all need to keep that in perspective. I know we are all say that we are in the market for the long haul as the market rises but we need to keep that same mantra in mind as the market declines.
If you have established a long-term investment strategy, then your portfolio is already designed to withstand these types of market fluctuations. Instead of looking to make major changes to your current holdings, you might look for opportunities to refine your allocation to better reflect your tolerance for risk and long-term objectives. In fact, I suggest you do the same on a quarterly or semi annual basis–but please not daily. We want you to be around in the future to reap the benefits of your sound investment decisions. Warning: daily monitoring can be taxing to the body!
If sudden changes in the market make you feel uneasy, then its time to re-assess your risk tolerance. There are many questionnaires available on line that will help you assess your risk tolerance and many financial professionals request you complete one before they design an investment program for you. Questions like: “Would you be able to sleep at night if the market declined X%?” is one that I have seen in many of them. Your age is also factored in since the younger you are, the more risk you could take since you have a longer time horizon than someone older. The range of risk tolerance is aggressive to conservative.
Whatever you do–don’t panic. No one can say for certainty how long the markets will continue to decline or when it truly has hit its bottom but what is certain is most investors rarely select the right time to either get in or out of the market. That’s called market timing and many a study has been done that concludes that it is ineffective. What I do know for sure is that if you have done sound financial planning for your future based on your risk tolerance and personal financial goals, there is no need to change your planning decisions because of the market volatility. Over long periods of time, the market has produced many positive years of performance. Of course, past performance is no guarantee of future results.
This article is intended to provide general information only and is not intended to provide investment advice or any recommendation to buy, sell or hold securities. The content of this article is not appropriate for the purposes of making a decision to carry out a transaction or trade, nor does it provide any form of advice (investment, tax, legal) amounting to investment advice or make any recommendations regarding particular financial instruments, securities, investments or products. Any information herein has no regard to the specific investment objectives, financial situation, or particular needs of any specific investor, and investments discussed may not be suitable for all investors. Neither NYLIM nor New York life will be liable for any errors or inaccuracies in such content or any actions taken in reliance thereon. As a registered investment advisor, NYLIM may render investment advice for compensation only as permitted under applicable US and state law.
Questions will usually be answered within the next bi-weekly posting of Ask Joan. If a question is particularly involved, or the answer depends on the specific circumstances, it may be possible to give only a very general answer. In these cases, you will be advised to seek more specific advice.
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