10-step program to navigate these choppy investment waters – Saratogian
Just as it is beneficial to establish an escape route from your home in the event of a fire, it is beneficial to establish a disciplined plan of action regarding your investments, while keeping in mind that panic does not is not a strategy.
With that in mind, we thought it was time to provide a ten-step program that could help you navigate these turbulent investing waters.
Step 1. Assess your current financial situation. Items should include your income, perceived job security, details of your retirement plan, projected social security benefits, insurance (life, health, disability, property and accident), real estate values, information on mortgages and other debts.
Step 2. Get a historical perspective on this period of history. Is it really different this time or are we in a phase of our history that will pass? Keep in mind that the stock market typically rises over a full business cycle (five to ten year period) with contained mini bulls and bears within it, then moves sideways over the next period with mini bulls and bearish in between.
Until further notice and most likely until monetary policy becomes significantly tighter, despite the dramatic pullback in March and April, we believe the equity market remains on an uptrend.
Step 3. Given the above, start determining your appropriate asset allocation. Some rules of thumb include that the older you are, the more fixed income securities (bonds) you should include in your portfolio. The more secure your retirement plan is, the closer you are to realizing the benefits of that plan, and how well that retirement plan and Social Security will meet your retirement income needs, the more to include. stocks (stocks) in his portfolio.
The more you are inclined to make emotional investment decisions, the more you should include fixed income investments. Keep in mind that the opposites of the above are also true and we are only talking about generalizations.
Step 4. Sell peripheral interests. Get out of investments you don’t understand or investments that contain volatility beyond your temperament. These may include, but are not limited to, emerging market funds, aggressive growth funds, lower quality (junk) bonds and small cap stocks. If a lack of risk tolerance is a problem, sell it so you can sleep at night.
Step 5. Hold some money. Depending on your situation, we estimate that between zero and twenty-five percent of your account is appropriate. Too little and you risk panic selling. Too much and you’re not making progress toward your long-term goals.
Step 6. Buy dividend-paying stocks. Do you realize that the 10-year US Treasury yields around 1.62% and the Proctor and Gamble stock yields 2.56%? Moreover, interest rates are at fifty-year lows and P&G has not only paid, but increased its dividend every year for the past sixty years. With that in mind and assuming that P&G does NOT increase or decrease its dividend over the next 10 years, if the stock drops 25% over that period, you will still make some money. A pool of these stocks seems like a better alternative for long-term investors than zero percent sitting in your bank account.
Step 7. Recognize that too many investors have their finger on the sell trigger and too many investors have guns – in the form of their computer. Try to figure out if you might be one of those people who doesn’t have the temperament or the time to invest on your own. There’s an old adage that goes, “Just because you can afford the ticket doesn’t mean you can fly.” Simply put, yes, it’s your money, but maybe your time, talent, and temper are better spent elsewhere.
Step 8. Be disciplined. Don’t chase the stock market day by day thinking you missed the mark. There will be many more boats to come. The volatility will continue. Be patient and let the scholarship come to you. What a new idea, buy on low days.
Step 9. Gain perspective. We are in our fifties. If the stats are true, that means we only have about 20 summers to enjoy it. All you can do is do your best and work towards your goals. It’s a bit like dieting and exercising, it’s your best bet, but it doesn’t promise anything.
Step 10. Become an investor, not a day trader. The media wants you to act, act, act, still screaming fire in a crowded room. Think about the previous nine steps to take a step back. Buy low, sell high. It sounds easy but is rarely accomplished by retailers as they often fear their investments at the wrong time. If history is any guide, that’s what will keep you from achieving your goals.
Please note that all data is for general information purposes only and does not constitute specific recommendations. The opinions of the authors do not constitute a recommendation to buy or sell the stocks, the bond market or any security contained therein. Securities involve risk and fluctuations in principal will occur. Please research any investment thoroughly before committing any money or consult your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell securities for themselves which they also recommend to their clients. Consult your financial advisor before making any changes to your portfolio. To contact Fagan Associates, please call (518) 279-1044.