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A Challenging Year for Investors: What Now?

By Judith Ward on October 27, 2009

Most investors would agree that the first rule of investing is to buy low and sell high. This may sound simple, but it hasn't been easy for investors to stick to over the past year as emotion has been on par with the market's volatility.

As a result, many investors were tempted to change their long-term investment strategy and may have reduced or even eliminated their exposure to more volatile investment options, particularly stocks and stock funds. Whether or not you changed your strategy, the recent market upswing probably has you wondering, "What now?"

Learning from The Past

I recently spoke with two investors, each who took different paths during the 2008 market downturn.


Investor 1

  • Strategy: Chose to stay invested in the stock market and kept making regular contributions to her retirement account.
  • Result: The balance is back to where it was just a year ago.
  • Assessment: By sticking with her strategy, Investor 1 was able to buy more shares during the downturn—offering more growth potential during the upswings. And contributing on a regular basis helped to add to the account balance over time.
  • My Recommendation: I encouraged Investor 1 to maintain her long-term strategy—and more importantly—to keep contributing.


Investor 2

  • Strategy: Found the market declines too hard to handle, so he moved his stock allocation and directed contributions to a money market fund.*
  • Result: The account balance has still yet to fully recover.
  • Assessment: Although Investor 2 continued to make regular contributions to his retirement account, which helped to maintain and increase his account balance, by moving to money market funds, he may have missed out on some good buying opportunities and the market rally.



Assumptions: Existing Investment Balance of $10,000 after the market close of 9/30/08. Monthly fixed contributions of $100 or $1,200 a year made at the beginning of the month from October 2008 through September 2009.Both investors were 100% invested in stocks through October 2008. Investor 1 decides to remain in stocks after the October 2008 decline in stocks. Investor 2 decides to simultaneously move his entire balance in stocks to cash and switches monthly contributions entirely to cash after the October 2008 decline in stocks. Investor 2 remains invested in cash through September 2009. The investment return of stocks is the total return of the S&P 500 Index. The investment return of cash is the total return of the 90-Day U.S. Treasury Bill Index.
Moving Forward

Whether you stayed in the stock market over the last year or got out of it, the good news is that it's not too late to get an investment strategy back on track:

  • First, determine your goals and create an appropriate long-term investment strategy—one that you'll be able to stick with—to reach those goals.
  • Second, set up automatic investments to make purchases or exchanges over time. This strategy helps those investors who want to get back into the stock market but would prefer to do so gradually.
  • Third, resist the temptation to deviate from your long-term strategy. Once it's in place, revisit your plan once or twice a year. For some investors, reviewing a portfolio too often—on a daily basis, for example—could lead to impulsive decisions that could harm, rather than help your strategy over the long term.

For investors don't wish to build or manage their own portfolio, consider a retirement fund, also known as target-date or life-cycle funds. Retirement Funds provide professional management, a high level of diversification, and automatic asset reallocation over time.

If you keep these simple approaches in mind and stick to your plan, you could help build a solid foundation for your financial future.

*An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in money market funds.

Systematic investing cannot assure a profit or protect against loss in a declining market. Since such a strategy involves continuous and consistent investment in securities regardless of fluctuation price levels, investors should try hard to continue purchases even in those periods when markets are down for the reasons discussed in this piece.

The principal value of the Retirement Funds is not guaranteed at any time, including at or after the target date, which is the approximate date when investors turn age 65. The funds invest in a broad range of underlying mutual funds that include stocks, bonds, and short-term investments and are subject to the risks of different areas of the market. The funds emphasize potential capital appreciation during the early phases of retirement asset accumulation, balance the need for appreciation with the need for income as retirement approaches, and focus more on income and principal stability during retirement. The funds maintain a substantial allocation to equities both prior to and after the target date, which can result in greater volatility.

All funds are subject to market risk, including the possible loss of principal. Past performance cannot guarantee future results. Results shown are for illustrative purposes only and not intended to represent the returns of any specific security.