Keep Your Goals in Mind When Reviewing Your Quarterly Statements
Tuesday April 1, 2008
As we have closed out the first quarter of 2008, those who have investments should be receiving their quarterly statements in the coming days. The first quarter of the year was not a very good one in terms of performance, and if you have investments in the stock market, you're probably going to see some negative numbers.
Nobody enjoys losing money, but even if your statement shows that you did during the first three months of the year, don't panic. You should certainly examine your investments and see how they fared, but make sure you're doing it in context of your investment objectives. For example, if you're looking at a retirement account and you have 20 years until retirement, the last thing you want to do is make drastic changes based on a couple months of poor performance.
Timing The Market
When you make significant changes to your investments based on what has happened over a relatively short period of time, you're trying to time the market. It has been proven that it is extremely difficult to consistently make good investment decisions by getting in and out of investments by reacting to current events.
Also keep in mind that by making a change now, you're doing so after the damage has been done. In a perfect world, you would make these changes in anticipation of a current trend. Selling an investment now based on what happened in January doesn't make much sense, does it? The markets could go down further, they could trade sideways, or they could go up in the next quarter. It is anyone's guess.
Dollar Cost Averaging
If you're investing like most Americans, you're probably taking part in a retirement plan through your employer such as a 401(k) plan. This means that every paycheck, probably weekly or bi-weekly, a small amount of money goes into your investment account. This is a good thing. These regular scheduled investments mean you're putting money into the market all the time. You're buying funds when they're high, and you're buying them when they're low. This takes the guesswork out of investing and makes it so you don't have to try and pick the best opportunity to invest. Over time, this strategy will serve most investors just fine.
Keeping Things in Perspective
You also want to keep things in perspective when it comes to performance. Remember, you're quarterly statement just shows a small snapshot of time. If you look back over the past three or four years, you'll likely see that one bad quarter isn't as bad as it first seems. There will always be ups and downs, and it is unrealistic to expect to see uninterrupted positive gains. Will your investments go back up? Certainly. It might not happen overnight or even after a few months, but the cycle will reverse just like it has done many times in the past.
Nobody enjoys losing money, but even if your statement shows that you did during the first three months of the year, don't panic. You should certainly examine your investments and see how they fared, but make sure you're doing it in context of your investment objectives. For example, if you're looking at a retirement account and you have 20 years until retirement, the last thing you want to do is make drastic changes based on a couple months of poor performance.
Timing The Market
When you make significant changes to your investments based on what has happened over a relatively short period of time, you're trying to time the market. It has been proven that it is extremely difficult to consistently make good investment decisions by getting in and out of investments by reacting to current events.
Also keep in mind that by making a change now, you're doing so after the damage has been done. In a perfect world, you would make these changes in anticipation of a current trend. Selling an investment now based on what happened in January doesn't make much sense, does it? The markets could go down further, they could trade sideways, or they could go up in the next quarter. It is anyone's guess.
Dollar Cost Averaging
If you're investing like most Americans, you're probably taking part in a retirement plan through your employer such as a 401(k) plan. This means that every paycheck, probably weekly or bi-weekly, a small amount of money goes into your investment account. This is a good thing. These regular scheduled investments mean you're putting money into the market all the time. You're buying funds when they're high, and you're buying them when they're low. This takes the guesswork out of investing and makes it so you don't have to try and pick the best opportunity to invest. Over time, this strategy will serve most investors just fine.
Keeping Things in Perspective
You also want to keep things in perspective when it comes to performance. Remember, you're quarterly statement just shows a small snapshot of time. If you look back over the past three or four years, you'll likely see that one bad quarter isn't as bad as it first seems. There will always be ups and downs, and it is unrealistic to expect to see uninterrupted positive gains. Will your investments go back up? Certainly. It might not happen overnight or even after a few months, but the cycle will reverse just like it has done many times in the past.
Comments
I hope that more people stop and think about their actions in the coming months and don’t let the world recession news panic them into doing something like selling shares etc just becaus ethey have not done so well recently. The more people who panic the worse the whole world economy crunch will be.
Patience, in time if we all hold our nerve, things will steady again.