Thursday, January 24, 2008

Stop Trading – Think Long Term

Over the past days, I have received numerous emails that all start the same way “Help! My 401K is down 10% in ONE month…” Usually the investor then asks if they should go to nearly all cash to stop the red ink?

The market is certainly in turmoil and I can understand the concerns of investors. However it is important for investors to think LONG TERM, and not trade the market with their retirement funds.

The critical point is the need to have a properly diversified portfolio to ride out the market’s valleys and peaks over time. One excellent summary about 401K diversification can be found here.

A number of investors have stashed a large bulk of their retirement funds in overseas funds because these stocks have outperformed the market over the past couple of years.

Unfortunately their decisions to not properly diversify may be coming home to roost shortly. Traditionally international stocks tend to have large swings; while also facing currency exchange risks and other issues. It is important for these investors to properly re-balance their portfolios to align with their age and risk tolerance.

While the 300+ point roller coaster each day is exciting… and stomach churning, it is no justification to alter a properly diversified retirement portfolio. There is no need to suddenly switch everything to cash or bonds Think long term with your 401K !