Never mind that I was already down at least a half dozen strokes. I ended up in a sand trap, and not the green side bunker; the one 50 yards in front of the green. It must have been the wind, right?
Playing to win can be tough; any golfer who has tried to reach a long par five green in two strokes can attest to that. But a difficult shot can suddenly become impossible with the addition of adverse conditions like strong wind, pouring rain or the lack of golf skills.
Investing can be viewed in a similar light.
Few would turn down the opportunity to invest when the markets are yielding eye-popping returns. It is human nature to want to invest when we feel good about our jobs, our family, the economy and the financial markets.
However, when the stock market moves south and we no longer have that warm, fuzzy feeling, most people don't invest as prudently as they should. Human nature often dictates that we do the exact opposite of what we know is in our best long-term interest, and we pull out of the market. Yet dropping out of investing altogether is as absurd as quitting a round of golf because you don't like the placement of the pins.
Instead, investors should re-examine their long-term plans, risk tolerance and investment mix, and make changes only as necessary. The important questions remain the same regardless of the market conditions: How much money do I need? When do I need it? What do I need it for? Am I still on course to get there?
Here are some tips to help you through unstable times, which are as inevitable as sand traps.
First, despite what the 24/7 financial news channels tell you, never panic. Market corrections and volatility are a fact of life. They can be severe, but when it comes to investing, what goes down usually comes up again. In fact, there has never been a bear market that we did not recover from and ultimately attain new highs.
Second, adjust your expectations. Many investors set unrealistic investment goals when they do not factor in current market conditions; don't fall prey to the same mistake.
Next, buy well and often. Down markets present potential opportunities to buy more with your hard-earned money. For example, if you always invest the same amount, you accumulate more shares when the market is down. When the market stabilizes, your return can rise proportionally. This investment principle, known as dollar-cost-averaging, may enable you to get more for your money.
However, dollar-cost-averaging does not assure a profit and does not protect against loss in declining markets. Since it is a strategy that involves continuous investments in securities regardless of fluctuating markets, consider your financial ability to continue purchasing during market downturns before implementing this strategy.
Finally, spend wisely. In an effort to increase your available cash, estimate your expenses and track your buying habits. Write down your expenditures for the next month. This will help you get a handle on your purchase patterns.
You can then highlight areas that are needs vs. wants, and evaluate remaining items to determine where you could spend less. Any excess that you discover can subsequently be redirected to your investments so you may take full advantage of dollar-cost-averaging.
The roller-coaster market that we are experiencing is more than just frustrating. For most, it is causing great concern, even fear. Investing, like golf, can be tough and requires great discipline. And like golf, the most consistent investors usually make the most successful investors in the long run.
Here's hoping that you get up and down in two. I didn't.
J. Preston Byers II, CPA CFP, a vice president with Consolidated Planning Corp. in Atlanta, is a Certified Financial Planner and Certified Public Accountant with more than 14 years of experience and expertise in the financial planning and investment industry, providing sound advice to individuals, families and small business. He specializes in investments, income tax planning, estate and gift planning, retirement planning and charitable gifting strategies. Reach him at (404) 892-1995 or firstname.lastname@example.org.