Wednesday, December 12, 2007

Staying Calm In A Volatile Market

"I know that history shows the stock market will be higher 10 years from now." -My Financial Advisor

In late October, 2007, I began transferring funds from my company's retirement account to a rollover IRA account. Since the first amount transferred was cash, I was planning with my financial advisor on the investment options. My personal preference is to try to time the market short term, especially since the market was declining slightly at the time. I asked would it be better to wait a while before investing the funds. My financial advisor, as always, said he didn't make recommendations on when to invest, saying what he did know is that historical return shows the stock market has been higher ten years from any point. I thought for a moment and told him to invest the entire amount.

As it turns out, the market did decline further to a 10% market correction on November 26, 2007. The funds I had invested were down about 7%. Since I won't need the funds for at least ten years, I remembered my advisor's comment and didn't worry. I kept thinking that any short term fluctuation doesn't really matter. What matters is the value 10+ years from today. Therefore, I stayed calm and didn't sell out at a loss.

Today, the retirement account investments managed by my financial advisor are at almost break even after fees, i.e. the value when it was first invested in October, 2007. While break even is not the long term goal, it's a lot better than -5 to -7% if I had sold in the short term. Also, since I expect to a conservative 7% gain annually, being break even after 1-2 months is acceptable.
At this point, I think the Fed is doing well walking the fine line between letting speculators get washed out and avoiding a deep recession. Therefore I will continue to stay invested and consider adding some more funds early next year.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Photo Credit: morgueFile.com, Paul Anderson

This is not financial or investment advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC

1 comment:

Matt said...

Take his truth with a grain of salt.

What your advisor said might be true for the US but you can look at Japan to see what has happened there.

http://www.finfacts.com/Private/curency/nikkei225performance.htm

If you invested money in the index at the end of 1992, you would have lost half your money ten years later.