The easiest time to forget why you are investing is when the market is in freefall – like it has been for the past few weeks. It’s during these times that we need to ask ourselves some important questions. Regardless of whether you make changes to your investments, I would suggest asking yourself these three questions before doing anything.
#1 - Have my goals changed? This is a very important question because it answers the “why” behind your investing. If your goal has been to retire in 10 years and have $9,000/month in income, has that changed?
# 2 - Does my portfolio support my goals? While nothing is guaranteed, history is one of the few tools we have to answer this question. Is your portfolio still expected to produce enough income to live on? For example, if you need $9,000/month, and $5,000 is coming from Social Security, is the portfolio still expected to produce the $4,000/month?
# 3- If I get out, what is my plan? If you have decided you just want to be out while things are bad, I would encourage you to define specifically what that means. What would have to be better in order for you to get back in? This is a very difficult question to answer because “bad news” doesn’t always correlate to “bad markets.”
For example, on March 13, 2009, a few days after the bottom of the US stock market, the Wall Street Journal wrote a piece called “Americans See 18% of Wealth Vanish. It described a well off family that was just now making the decision to downsize and start couponing as a “survival tactic.” The article went on to briefly reference the previous few days of positive returns but quickly returned to the 16% decline since the fourth quarter. (Kalita, 2009).
Because of the timing of articles like this, I would encourage you to make a plan that does not only include what is the headline news.
Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. This information is not intended to be a substitute for specific individualized investment, tax or legal advice. We suggest that you discuss your specific situation with a qualified investment, tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing.
1. Kalita, S. Mitra. “Americans See 18% of Wealth Vanish.” The Wall Street Journal, Dow Jones & Company, 13 Mar. 2009, www.wsj.com/articles/SB123687371369308675#project%3Dwealth0903%26articleTabs%3Dinteractive?mod=article_inline.