The continual gyrations in the stock market have caused many people to question their investment strategy. Questions like “What should I do now?” and “Should I sell my stock positions and move into a money market?” are running through many investors’ minds.
And while it is important to avoid making emotional buying and selling decisions based on the temporary state of the markets, it is a great time to analyze your financial foundation and to fill in any cracks that you might have.
The first thing to keep in mind is that the best investment strategy is a long-term plan that is reevaluated over time, not every time you hear the latest market update. “Buy-sell decisions” are best made when they follow the financial goals for the individual. Keeping your eyes focused ahead on your future investment goals will help you to not get hung up on the bumps in the road. Successful investors understand that investing requires self-discipline and occurs over decades, not day trades. The latest economic indicators, Federal Reserve actions and contradicting Wall Street analysts may have you wanting to act now, but it’s important to remember, though, that the desire for a quick fix to relieve anxiety and fear can often hurt your investments in the long-run.
Even with the recent downturn, the case for owning stocks is as strong as ever. Historically, the stock market has been the best possible way to participate in the long-term growth of the United States economy. Common stocks averaged over 10% annually since 1925, which included the Great Depression and the crash of 1987. Some of those years had wild fluctuations, but over time the results speak for themselves. Let’s take a look at a few things to consider as you review your long-term investment game plan.
Make sure your debt is under control
Do you want to guarantee an 18-20% return on your money? All you have to do is cut up your credit cards and pay them off. If you still have debt hanging over you, you might want to consider deferring your investment savings and allocate more money to debt reduction. You can always resume investment savings once your financial foundation is more secure.
Maintain an adequate emergency fund
Set aside 3 to 6 months of expenses is an emergency fund that is readily available before you implement your investment strategy. The emergency fund is a necessary component to a sound financial plan to cover unexpected expenses or to even carry you through the loss of income.
Have a well diversified portfolio
Many investors who were enticed by the huge gains in the technology sector in the 90’s abandoned their traditional diversification models only to discover that 50%, or even 30%, annual returns were not sustainable. When the tech sector came crashing back to earth, their portfolios followed suit. Make sure you are properly diversified according to your age, objectives, and risk tolerance. In some cases, you might be in a position where you should move your portfolio into more income generating investment vehicles such as preferred stocks, bonds or high dividend securities.
Place your trust
in God alone
The tragedy of September 11th showed that the financial security that many think we have in the United States can be reduced to rubble in a matter of seconds. If our attitude about money is to amass as much as possible in order to protect ourselves, we are trusting in money rather than God. God wants us to place our trust in Him rather than our investment portfolios. Proverbs 3:5 tells us to, “Trust in the Lord with all your heart, and do not lean on your own understanding. In all your ways acknowledge Him, and He will make your paths straight.” King David describes his trust in God by saying, “My soul finds rest in God alone; my salvation comes from Him. He alone is my rock and my salvation; He is my fortress, I will never be shaken” (Psalm 62:1-2). That, my friend, is real security.
Rob West is the Training and Communications Director for Kingdom Advisors, a non-profit Life that exists to equip and disciple Christian financial advisors to integrate their faith and profession. Please send questions and comments to [email protected]
The information in this article is for information purposes only and does not constitute advice. You should not rely on any information in this article to make (or refrain from making) any decision or take (or refrain from taking) any action.