Don’t Let External Events Keep You from Investing

If you look for reasons not to invest right now, you could find them – global unrest, high gas prices and so on. Yet, if you wait until “things settle down” before investing, you’ll have difficulty achieving your financial goals, because there will always be some external events that could keep you out of the market – if you let them. But the smartest investors look beyond today’s headlines – and when tomorrow arrives, they are often rewarded for their patience and perseverance.
Want proof? Look at every major event of the past century that could have given investors the jitters, such as assassinations, wars and political crises. You will find that after just a few years – and in some cases, a few months – the stock market not only gained back the ground it initially lost, but moved to new heights.
For a dramatic illustration of this pattern, consider the aftermath of the terrorist attacks of Sept. 11, 2001. Immediately following this event, the stock market closed for several days. When it reopened, the Dow Jones Industrial Average immediately fell 684 points. By Sept. 24, the Dow was off 14.3 percent , its worst weekly percentage loss in 61 years. For 2001, the Dow lost 7.1 percent, closing the year at 10,021. But if you fast-forward five years to 2006, the Dow had recouped its losses several times over, closing the year at 12,463 – a 24 percent gain since the 2001 close.
In short, while it is true that past performance is no guarantee of future results, history has shown that the stock market has been resilient enough to overcome even the most cataclysmic of events. So don’t head to the investment “sidelines” in reaction to troubling news. You may need to change your investment strategy in response to some events – but, by and large, they should be events related specifically to your individual situation or your existing investments. Consider the following scenarios:
*You move closer to retirement. During much of your working years, you’re trying to build financial resources for retirement. Consequently, you’ll need to invest a sizable amount of your portfolio in growth-oriented vehicles, such as stocks. As you move closer to retirement, and even during retirement, you’ll still need some exposure to stocks, because you’ll need their growth potential to keep ahead of inflation. However, you may want to work with your financial advisor to rebalance your portfolio to provide more income-producing opportunities, which may come from bonds, certificates of deposit or even dividend-paying stocks.
*You see a change in your existing investments. Many people sell some of their investments due to short-term price fluctuations. This is generally not a good idea, because long-term performance is what counts. However, if you notice other changes in your holdings, it may be time to make some moves. For example, if you own stock in a company whose management or business objectives have changed, or whose products or services no longer seem competitive, you may be better off by selling your shares and moving on to new opportunities.
You may find other reasons associated with your life or your portfolio to make changes – but don’t be swayed by the events of the day. If you invest wisely, and keep on investing, the future can be bright.