Investment Focus Should Be On The Long Term

The fact is, despite the terrorist attacks on September 11, investing basics remain the same.

Our initial instinct is to get out of the market, and stay out, especially as the market goes through steep declines in the days and weeks following the attack. The personal trauma nearly every American feels understandably effects our financial judgment. But unless you are changing your core reasons for investing - retirement, college funding, passing wealth on to heirs - now is neither the time nor the reason to abruptly alter your investment strategies.

Lets look at the facts. Our economy and our capital markets have repeatedly demonstrated their resiliency. Consider a few of these examples:

• The Dow Jones Industrial Average declined 12 percent in the early weeks of the Korean War, yet bounced back 19.2 percent within another four months, according to Ned Davis Research
• The S&P 500 declined 1 percent soon after Pearl Harbor, but was up 20 percent within one year and was up 81 percent after three years, according to Ibbotson Associates
• After the Dow plummeted 34.2 percent in the October 1987 panic, it climbed 15 percent in the ensuing four months
• The Dow stumbled 4.3 percent in the early days of Desert Storm, but had climbed nearly 20 percent two months later, according to Ned Davis Research

These examples are not to say the market or the economy will necessarily rebound as strongly or quickly. The scope of the events of September 11, have no equivalent in our nation’s history. In addition the market has been on an 18-month drop and the economy on the edge of a recession. Selling only locks in the losses, just as the good times of the late 1990s so many investors thought would never end finally did end, will the bad times end.

Nonetheless, this could be a good time to reexamine your portfolio.

First, ask yourself why you are in the market. Are you investing for long-term goals such as retirement, college funding or accumulating assets for heirs? Are those goals still at least several years away? If so, stick to your long-term strategies. You will likely weather just fine any temporary downturns along the way. Automatic investing can help keep emotions out of play. And an emergency fund with enough cash to fund three or four months of bare-bones living expenses also helps reduce the need or impulse to sell assets that might be down in value. You always want to sell when you can, not when you have to.

What you should not be in the market for is the short term. Investing in the market in the hope of making some extra bucks to buy a car or make a down payment on a home within a year or two is not a good idea because you may not recover from any losses in such a short time.

Also, ask yourself how worried you have become about your portfolio. Investors with a long-term outlook and a properly balanced portfolio are less likely to panic-sell. Excessive worries may also indicate that you are invested in assets that are too risky for your long-term needs.

REMEMBER: MOST OF ALL TRUST IN GOD - I CAN DO ALL THINGS THROUGH HIM WHICH STRENGTHENS ME. PHILIPPIANS 4:13