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Should You Buy the Dips?

Should You Buy the Dips?

Market retreats & corrections may herald opportunities.

 

Provided by MidAmerica Financial Resources

 

When stocks retreat, should you pick up some shares? If you like to buy and hold, it may turn out to be a great move.

   

Buying during a downturn or a correction may seem foolish to many, but if major indexes sink and investors lose their appetite for risk, you may find excellent opportunities to purchase shares of quality firms.

   

Remember what Warren Buffett said back in 2008: “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.” Even in that terrible bear market, savvy investors like Buffett sensed an eventual upside.1

   

Great stocks could go on sale. Corrections and downturns are part of the natural cycle of the equities markets. Wall Street has seen 20 corrections (10% or greater declines in the S&P 500) in the last 70 years, and stocks have weathered all of them.2

 

A comeback can occur not long after a correction: as S&P Capital IQ chief stock strategist Sam Stovall reminded Kiplinger’s Personal Finance, it usually takes about four months for the market to get back to where it was.2

   

After a market descent, there is ultimately a point of capitulation – a turning point when investors start buying again. Prior to that moment, you may find some good deals. Why not make a list of stocks you would buy at the right price, and perhaps define that price?

   

Some downturns & corrections go under the radar. Particular sectors of the market may dip 5%, 10% or more without much fanfare, because the focus is constantly on the movement of the big benchmarks. You might want to keep an eye on a particular slice of the market that has turned sour – it could turn sweet again, and sooner than bears think.

   

Don’t let the gloom dissuade you. Remember 2008? Stocks were supposedly down for the count. You had people who believed the Dow would fall below 5,000 and stay there. They were wrong. Seasoned investors like Buffett knew that measures would be taken to repair the economy, restore confidence and right the markets.

  

As he noted in an October 2008 New York Times op-ed piece, “To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.”1     

   

Since the end of World War II, Wall Street has experienced 13 bear markets and 20 corrections. Even so, large-company stocks have returned an average of 11.1% per year since 1945.2

 

Decline thresholds may be useful. If you practice dollar-cost averaging (i.e., you invest a set amount of money each month in your retirement account), you know that your money will end up buying more shares when prices are lower and fewer when they are higher. You can lift this strategy and apply it in a market dip or downturn. Instead of investing a set amount of funds per time period, you invest a set amount of funds at a decline threshold. So if the balance of your retirement account falls 5%, you put a set amount of funds in. If shares of a particular company fall 5%, you use a set amount of funds to acquire more of them.

   

Some people don’t like the buy-and-hold approach and would contend that tactical asset allocation has the potential to work just as well or better in a downturn. Whether you like to buy and hold or not, the chance to buy low is not easily dismissed. No one is guaranteeing you will sell high, of course – but you might find bargains amid all the bears.

 

Think about taking the opportunity to add to your portfolio if the market pulls back. A market drop may be your cue to buy shares of quality companies at a cheaper price.

    

MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com.

www.mid-america.us

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

     

Citations.

1 - forbes.com/sites/greatspeculations/2014/02/04/where-to-get-greedy-now-that-others-are-fearful/ [2/4/14]

2 - kiplinger.com/article/investing/T052-C008-S002-how-to-survive-a-stock-market-correction.html [8/14]

 


The Retirement Mindgame

The Retirement Mindgame

Your outlook may influence your financial outcome.

 

Provided by MidAmerica Financial Resources

    

What kind of retirement do you think you’ll have? An outstanding one? A depressing one? What if it all starts with your outlook? Qualitatively speaking, what if the success or failure of your retirement begins with your perception of retirement?

  

A whole field of study has emerged on the psychology of saving, spending and investing: behavioral finance.  Since retirement saving is a behavior (and since other behaviors influence it), it is worth considering ways to adjust behavior and presumptions to encourage a better retirement.

     

Delayed gratification or instant gratification? Many people close to retirement age would take the latter over the former. Is that a good choice? Often, it isn’t. Financially speaking, retiring earlier has its drawbacks and may lead you into the next phase of your life with less income and savings. 

  

If you don’t love what you do for a living, you may see only the downside of working longer rather than the potential boost it could provide to your retirement planning (i.e., claiming Social Security later, tapping retirement account balances later and letting them compound more). If you see work as a daily set of unfulfilling tasks and retirement as an endless Saturday, Saturday will win out and your mindset will lead you to retire earlier with less money.

 

On the other hand, if you change your outlook to associate working longer with retiring more comfortably, you may leave work later with a bigger retirement nest egg – and who wouldn’t want that?

 

If you don’t earmark 66 or 70 as your retirement year, you can become that much more susceptible to retiring as soon as possible. You’re 62, you can get Social Security; who cares if you get less money than you get at 66 or 70, it’s available now!

 

Resist that temptation if you can. While some retirees claim Social Security at age 62 out of necessity, others do out of inclination, perhaps not realizing that inflation pressures and long term care costs may render that a poor decision in the long run.

 

The good news is that Americans are waiting longer to claim Social Security than they once did.    Increased longevity may be a factor in that trend, but the findings are encouraging nonetheless. The number of men claiming Social Security at age 62 increased 2.3% from 2007-09 to 35.8%, and the number of women claiming Social Security at age 62 increased 2.6% in that span to 38.9%. Still, these percentages fell short of those a generation before.  From 1986-97, roughly half of all women claimed Social Security when they turned 62 and nearly half the men did; since 1997, the percentages have never approached those levels.1,2

 

Setting a target age for retirement – say, 65, 66, or even 70 – before you turn 60 can help mentally encourage you to keep working to that age. Providing your health and employment hold up and you can work longer, patience can lead you to have more Social Security income rather than less.

    

Take a step back from your own experience. For some perspective on what your retirement might be like, consider the lives of others. You undoubtedly know some retirees; think about how their retirements have gone. Who planned well and who didn’t? What happened that was unexpected? Financial professionals and other consultants to retirees can also share input, as they have seen numerous retirements unfold.

 

Reduce your debt. Rather than assume new consumer debts that advertisers encourage us to take on commensurate with salary and career growth, pay down your debts as best you can with the outlook that you are leaving yourself more money for the future (or for unexpected situations).

 

Save and invest consistently. See if you can increase your savings rate en route to retirement.  Don’t look at it as stripping money out of your present. Look at it as paying yourself first, and investing for the comfort of your retirement.

    

MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com.

www.mid-america.us

     

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 - ssa.gov/retirementpolicy/research/early-claiming.html [4/13]

2 - fool.com/retirement/general/2014/06/07/social-security-what-percent-of-americans-claim-be.aspx [6/7/14]

 





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