Don’t Let Politics and Volatility Distract You From Your Investing Goals

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So much is going on to sidetrack investors and trigger volatility in the markets. In fact, in a recent Kiplinger-Personal Capital survey (opens in new tab), respondents identified political deadlock, global trade/tariffs, and geo-political tensions as the top threats to the US economy in 2020.

Throw in an upcoming presidential election, and it’s not surprising some investors are nervous despite overall positive trends in the market. According to the survey, they’re stockpiling cash (an average of 17% of assets) and a good portion(nearly 4 out of 10) are checking investment accounts weekly or even daily.

But while many remain nervous, others are showing signs of euphoria. And the reality is that long bull markets typically don’t end until there is near universal optimism. That is far from the case now.

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So, while a downturn is inevitable (and we should never be surprised when one hits), we see no reason the party can’t continue through 2020 and beyond. Historically,stocks rise in about 70% of calendar years. Those are tough odds to bet against.

Staying focused now

That said, 10 years into a bull market is probably not a wise time to get greedy,and trying to predict its future course can lead to costly mistakes. A better step is to make sure you know what you own and to make reasonable assumptions about expected risk and return outcomes.

If nothing else, you should determine if you are on track for your retirement spending goals, how much of your portfolio is in stocks, and how much you have in any given sector. In the last two bear markets,the leading sectors heading in declined 80%. That is unlikely to repeat, but it highlights the risks of sector concentration which most people don’t fully appreciate.

You’ll also want to establish a checklist or review process for major portfolio changes. The idea is to understand if you are making a change for a rational reason or because something changed in your life versus making decisions based on emotions, such as fear of loss or fear of missing out.

Extreme portfolio changes — both in and out of the market — that are driven by emotion can be a big mistake. Selling in times of fear or piling in on top of a market rally may feel good in the short term but often times can lead to disaster.

For those worried about market declines,it is much better to be in a conservative,diversified portfolio with a lower equity allocation than to sit completely on the sidelines or make a few big bets on isolated stocks.

And in the long term

A smart move to make is to take a step back and get a holistic view of your financial life. Know where you are in good shape and where you are not. Then identify an asset allocation you think makes sense for the next ten years and stick with it.

Also, at any point, smart investors manage the things over which they have some control. Taxes is one of these. Another is periodically rebalancing by taking profits from what has done best and reallocating them to asset classes that are lagging.This kind of rebalancing has proven to add value over time.

Many times, financial planning actions are more important than investment returns.Make sure you are saving the right amount. And if you’re already retired, make sure you’re drawing appropriate amounts from the right accounts. Also, almost everyone should have an estate plan in place.

Keeping your eye on the prize

Ultimately, it’s most important to stay grounded. Investors who focus on bigpicture retirement goals are less likely to make short-term emotional investment mistakes.

Taking advantage of improvements in technology is another key step. Great tools exist to help you understand and track the level of risk in your portfolio and how it impacts your long-term goals.Personal Capital’s holistic tools, for example,are a fantastic way to view the larger picture and avoid piecemeal investing.

Personal Capital offers free online financial tools, a mobile app, a high-yield account,and personal wealth management services. Learn more at www.personalcapital.com (opens in new tab).

Advisory services are offered for a fee by Personal Capital Advisors Corporation, a wholly owned subsidiary of Personal Capital Corporation. Personal Capital Advisors Corporation is a registered investment advisor with the Securities and Exchange Commission (“SEC”). SEC registration does not imply a certain level of skill or training. Investing involves risk. Past performance is not a guarantee or indicative of future returns. The value of your investment will fluctuate, and you may gain or lose money.

This content was provided by Personal Capital. Kiplinger is not affiliated with and does not endorse the company or products mentioned above.