The current rollercoaster ride the stock market is on could make you feel pretty terrified if all of your retirement funds are invested in the market. The type of activity we’re experiencing now is exactly why I emphasize the importance of allocating retirement money between short-, mid-, and long-term buckets.
This strategy helps my clients weather the ups and downs of the Stock Market. Having some money in cash and conservatively invested for the short- and mid terms gives you a greater sense of security when the market is volatile and helps you stay invested in the long- term growth accounts.
Let’s face it. Since they are often affected by economic and political conditions, th ups and downs of the market are out of our individual control. Typically, you’ll see that in a growing economy, stock and real estate markets do well. Political actions that also tend to help stock values rise can be attributed to cuts in taxes and interest rates, high employment, political stability and increased corporate profits.
On the other hand, during times of political uncertainty you’ll see that the bond markets typically do well. Moderate inflation, international conflicts, a volatile stock market and tight money supply often are a boon to bond markets.
Conservative investments like certificates of deposit and money market funds may offer a margin of safety in a volatile market. They may be OK for short-term financial goals that don’t have time to weather market downturns. But they may not offer enough growth to beat inflation over the long term, leaving you with less purchasing power.
When you have your investments dispersed for the short, mid and long-term, you can ride any roller coaster without fear. Eventually the huge dips and rises will even out and follow a different course.
This content is provided for informational and educational purposes only. The information, analysis and opinions expressed herein reflect our judgment as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation. All investments carry a certain risk and there is no assurance that an investment will provide positive performance over any period of time. Information obtained from third party resources is believed to be reliable but not guaranteed. Past performance is not indicative of future results.