There is uncertainty everywhere – high unemployment, budget deficits, healthcare reform, and the list goes on. It’s hard to know what moves to make as an investor. Though the panic you probably felt during the early months of 2009 may have ebbed, the Dow Jones Industrial Average has still not returned to the high of 2007, and the direction of the market is never certain.
It’s time to face facts – there will always be uncertainty. The issues we are worried about today will eventually be resolved. Unfortunately, they will be replaced with a whole new set of concerns. Now is not the time to abandon the fundamental investing principles. Here are four moves not to make now.
- Keep your money idle. It’s tempting to sit on the sidelines while the markets sort themselves out. But there are two problems with that approach. The first is that if you’re going to reach your retirement goals, you’ll need growth in your portfolio, and that means putting your money to work in suitable investments. The second is that if your plan is to sit out until markets improve, you’ll inevitably miss much of what the market provides. The best time to buy is when the market is down, not when you feel comfortable, and trying to time your entry and exit into the market almost never works.
- Chase the golden goose. Trying to get well in a hurry by jumping on the bandwagon for high-flying stocks or high-yielding bonds is another common investing mistake. The best time to invest in a particular sector or category is before a market run-up, not after. You’ll probably be too late to the party if you invest heavily when substantial gains have already been realized, and you may be left holding overvalued investments vulnerable to sharp declines, especially while the markets remain volatile.
- Rely too much on “safe” investments. Diversifying your portfolio with reasonable allocations to low-risk, low-return investments such as bonds and money markets is smart, but veering too far in that direction can be just as damaging to your long-term prospects as chasing hot stocks or trying to time the market. “Safe” investments bring their own risks, including a loss of value when interest rates rise and inflation picks up.
- Stop saving for retirement. When times are tough, paying bills may have to take precedence over saving. But your future needs are also crucial, and continuing to contribute to your 401(k) or other retirement plan—even, or especially, if its value has plummeted—is the only way to ensure that you’ll reach your long-term goals. These turbulent times too shall pass, and it only makes sense to keep working toward your ultimate objectives. In fact, cost averaging into your 401(k) enhances returns when the market drops—a reward for continuing to save.