Keep Your Nest Egg Off the Roller Coaster Ride

Avoiding the emotional roller coaster when saving for your future

When there are big swings in the stock and bond markets, you may experience a range of emotions — sometimes elation, sometimes fear. But emotion should have very little connection to a retirement that may be 15, 20 or 30 years away.

In for the long run

Investing shouldn’t be thrilling. In fact, investing should feel relatively boring most of the time. If you have the confidence to maintain a long-term perspective, the fact that stock and bond prices go up and down every day should have little to no impact on your emotions. Consider these two facts:

  • Based on 10-year periods, between 1937 and 2011, the U.S. stock market was up 67 out of 74 years.1 Stock returns, while not guaranteed, also historically have had the best potential to outpace inflation. If your investment horizon is 10 years or more, you have little to be concerned about.
  • Bonds, especially those backed by the full faith and credit of the U.S. government, have had a remarkably stable history of paying back principal and interest.

All investors can take steps to remove most of the heart-pounding adrenaline from investing.

  1. Seek built-in professional advice    

    Most retirement plans offer investment options that require very little oversight or ongoing management effort on your part. Employing professional money management, built-in diversification2 and risk controls, these “do it for me” options include the following:

  • Balanced funds. By seeking to maintain a roughly equal percentage of investments in stocks and bonds, a balanced fund may be able to provide diversification benefits, which include smoothing of returns.
  • Target-date funds. In the early years, you’ll have more exposure to stocks that have greater reward potential. As you approach and move through your expected retirement date, the allocation automatically shifts to more conservative investments, such as bonds and cash.3
  • Lifestage funds. These funds are designed to align with an investor’s specific objective at a given stage of life — growth, growth and income, or capital preservation, for example — and consistently maintain that risk posture over time.

2. Stay engaged with — and on top of — your plan

It makes sense to revisit your investment strategy at least once a year to make sure your investment selections are in tune with your goals. Pay close attention to your retirement time horizon. If you are more than 10 years away from your expected retirement date, you can put more emphasis in your portfolio on stocks.     

Although no investment approach is without risk, following these steps will help you save and invest in a way that may not be as exciting as a Las Vegas roulette table, but that can help put you on the road to a secure retirement.

1 Marc Lichtenfeld, “Why Investors Shouldn’t Worry About the Next Ten Years,” US News and World Report, August 22, 2012. Past performance does not predict future results. Http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2012/08/22/why-investors-shouldnt-worry-about-the-next-ten-years

2 Diversification does not guarantee a profit or protect against loss. Investors need to carefully consider their ability to invest in a down market.

3 Please keep in mind that different investment managers use different investment strategies. Participants should review holdings as they approach the target date to make sure the investments remain consistent with their objectives. The principal value of a target date fund is not guaranteed at any time, including at the target date.

Disclosure: This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. LPL Financial and its advisors are providing educational services only and are not able to provide participants with investment advice specific to their particular needs. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com

© 2016 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this newsletter are those of Kmotion. The articles and opinions are for general information only and are not intended to provide specific advice or recommendations for any individual. Nothing in this publication shall be construed as providing investment counseling or directing employees to participate in any investment program in any way. Please consult your financial advisor or other appropriate professional for further assistance with regard to your individual situation.