By: Jeremy Skoglund, VP Trust Officer
As we’ve watched the stock market drop, come up, and drop again, the question becomes what should we do? Our emotions begin to tell us that we have to do something now. If you were running a sprint, I would say, yes, you need to do something right away. In a sprint, the race is short, and you don’t have room for fluctuations in your performance. You run a sprint to win or at least finish towards the top, so you can’t afford to have problems along the way. Investing, on the other hand, is a marathon. When you run a marathon, your goal isn’t to win. Your goal is to finish. You may run a mile faster or slower than other miles, slow down to eat or drink something, get caught up in a crowd going at a pace you weren’t planning to go. All of these things would be detrimental if you were sprinting. In a marathon, you have time to recover and can usually expect to have some slower miles throughout the race. So, what should you do when the market goes down as it has? The same thing you do when the market goes up – stick to your plan. A good plan will have you invested according to your risk tolerance, needs, and investment objectives. What if you don’t have a plan? Well, then follow these steps.
Identify Your Investment Objectives, Risk Tolerance, and Liquidity Needs
People don’t usually wake up one morning and decide to run a marathon that day. Marathons take a lot of training. Your investment training includes figuring out what your investment objectives are, what your risk tolerance is, and what your liquidity needs will be. If you have not identified these, it will be like running a marathon with no training. Your muscles will cramp up after a couple of miles, and your body won’t know what to do.
Select Investments that Match your Needs
After you have an idea of what your goals are, look for investments that will help meet those goals. Don’t feel like you have to do this on your own. There are a lot of resources to help you identify investments that are right for you. Having an Advisor is one of the best ways, as they can match investments with your risk tolerance and also help you stick to your plan.
Review Your Plan Periodically – Stop Watching the Markets Daily
When you’re running a marathon, and you look at your watch every minute, you risk losing focus on the goal of finishing. Your emotions will start affecting your performance. The same can be said for investing. There will invariably be ups and downs in the market, so you can expect to see ups and downs with investments that you choose. But you are investing and not day-trading, so you can look beyond the daily ups and downs and focus on the long-term. Go through your investment portfolio yourself or meet with your Financial Advisor at least annually to review your plan. There may be changes you want to make more frequently, but a lot of times, those changes are the result of your emotions. If you set up regular times to review your portfolio and stick to that schedule, you will guard against buying and selling too often.
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