Concerned about what the stock market has been doing lately?
Don't be.
According to a recent survey by the American College of Financial Services, more than 60 percent of respondents are concerned about market drops in 2016.
It's hard not to be a little nervous when you get a statement showing that your retirement holdings have shrunk, say, 8 percent since the first of the year.
My advice is simple. Keep contributing. Sell nothing. If you have to, don't open those statements for a month or two.
There's only one caveat: If you are five years or less away from retirement and for some reason have a 401(k) that's 95 percent invested in mutual funds or other securities, you are not sufficiently protected from volatility. You have my permission to shift 60 percent of your portfolio into bonds, cash equivalents and other stable investments right this minute.
Remember the rule of thumb: 110 minus your age equals the percentage of a typical portfolio that should be in stocks (index funds or mutual funds). For a 30-year-old, it should be as much as 80 percent. For a 50 year old, 60 percent.
Otherwise, with more than five years for your money to grow, you are officially a long-term investor. And as a long-term, low-cost, value investor, you're not going to gain anything by chasing the market. There is no need to be focused on short-term fluctuations and even large corrections. Over time these things will smooth out. And time is on your side.
It's unfortunate that financial news focuses so much on the markets. It's surprising, too, since Gallup tells us that only a tick over half, 55 percent, of Americans actually own stocks. This is down from a high of 65 just percent before the financial crisis of 2008. Over the last near-decade, Americans who got out and stayed out of the stock market -- or those who never came in -- have missed out on a great deal of equity appreciation that they could have used to retire comfortably. By overreacting to the crisis, or by reacting for too long, these folks have cheated themselves out of the recovery.
The biggest swing has been seen among middle-class Americans and mid-career adults -- 35-54 year olds, and those making between $30,000 and $75,000 a year. Three out of four of both groups used to own stocks, and only 56 to 58 percent do now.
But when it comes to the wealthiest Americans? Almost 9 out of 10 have bought into stocks. Maybe that should tell you something.
There's another big-picture point to take from the current market, one that I'm planning on keeping in mind as I think about my investment strategy in the years and decades to come. The slowdown in China as well as the downturn in the U.S. market is reminding us that it's important to diversify internationally, and into emerging markets as well, through index or exchange-traded funds. Remember, about half of all quality stocks are found outside the United States.
It's a strange truth of our time that the big picture "economic" news can actually be running in the opposite direction from our personal financial fortunes.
Recently, consumer confidence has been good. Spending has been up slightly. Rates of default on debt are low and stable. So why is there so much nervousness among the financial sector?
Wall Street is crashing lately in part because the dollar is strong, making it harder for this country to export products, and because gas prices are low for a variety of reasons.
But a strong dollar means slightly cheaper imported goods in stores -- everything from Mexican avocados to Chinese shoes. And cheap gas -- well, I don't have to tell you why it's a nice thing to pay less at the pump. - Chicago Tribune
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