The market may be up right now, but it's no secret that it can be a rollercoaster, with peaks and valleys that can be quite dramatic and jarring. Those undulations affect many people - and those saving for retirement are among them. In a recent article in FiduciaryNews, Christopher Carosa offers some ideas on what retirement savers should not do when the market hits a valley.
'During expanding markets, cooler heads constantly prevail upon us to accept 'no tree grows to the sky,' writes Carosa in 'The Three Biggest Mistakes Retirement Savers Make During Down Markets.' And yet, he says, 'It seems no sooner do we see the market breaking new highs than some new and disturbing event occurs that causes markets to drop precipitously.'
Carosa argues that during boom times, it is common to 'assume the market will go up forever, and fail to prepare for the eventual correction.' And that applies now, he cautions: 'With the market topping new highs, it's only a matter of time before the next 'surprise' spooks the markets. Now is the time to mentally prepare for this inevitability.'
'The key to not only surviving, but thriving, in the ups and downs of the market is summarized in one word: Discipline,' argues Carosa, which he says 'is what makes you lean face first into the wind and hold your ground.' The first way to succeed is to learn what the mistakes are, he writes, particularly so one can avoid them.
Acting on Emotion and Selling Low
Carosa suggests that retirement savers not let emotions control them, since doing so can lead to bad investment decisions, and cites retirement plan experts' warnings against panic and selling when the market declines. 'It's not easy to control one's emotions, but that is what needs to be done,' he writes, noting Brave Boat Capital Advisors President Zach Stuppy's comment that 'This is the exact time to take a disciplined approach.'
Stopping Contributions to a Retirement Plan
Abandoning the market when there is a downturn, Carosa says, 'is the exact opposite of standing face first into the wind.' He cites Stuppy's argument that stopping or reducing savings out of fear of losing money is not only mistaken, but that 'the exact opposite strategy is the correct one,' and adds a question posed by John Cheshire, Director of Private Client Group and Senior Portfolio Manager at Dividend Assets Capital: 'We get excited when our groceries or toilet paper are on sale, why do we panic when stocks go on sale?'
Knee-Jerk Plan Revisions
'Unfortunately, the temptation to change the plan can be overwhelming,' Carosa writes, noting the view of Robert R. Johnson, President and CEO of The American College of Financial Services, that one of the biggest mistakes retirement savers make is to revise their plan when the markets are doing poorly, whereas they really should make changes when they are strong.
Failure to Plan
'The nub of the problem,' writes Carosa, 'is that people don't make plans,' and that the failure to do so can lead to bad decisions.
'It is critically important that retirement savers make a long-term game plan for their savings and investing strategy,' Carosa concludes. By doing so, he says, they are more likely to make good decisions and stick to them when times are rockier and the market is down.