Understanding Market Fluctuations

Understanding Market Fluctuations

Continuing to invest in your retirement plan is sometimes difficult to do during market declines but, regularly adding to an account that's designed for a long-term goal may cushion the emotional impact of market swings. If losses are offset even in part by new savings, the bottom-line number on your statement might not be quite so discouraging.

When you regularly contribute to your retirement plan even during down times you are using a dollar-cost averaging strategy-investing a specific amount regularly regardless of fluctuating price levels-you may be getting a bargain by continuing to buy when prices are down. However, you'll also need to consider your financial and psychological ability to continue purchases through periods of low price levels or economic distress; dollar-cost averaging loses much of its benefit if you stop just when prices are reduced. And it can't guarantee a profit or protect against a loss.

If you just can't bring yourself to invest during a period of uncertainty, at least try not to let it derail your savings program completely. If necessary for your peace of mind, you could continue to save, but direct new savings into a cash equivalent investment until your comfort level rises. Though you might not be buying at a discount at that point, you'd at least be creating a pool of money that you could invest when you're ready. The key is not to let short-term anxiety make you forget your long-term plan.

The major difficulty is not the getting out, it is the timing of getting back in. This can be very harmful to your investments. If an investor were to miss the best 10 days in the market over the last 10 years, their average annualized return would have fallen from 6.57% to 1.58%. If they missed the 30 best days over the last 10 years, their average annualized return would have declined to -5.41%.While no one can predict the bottom of the market, history shows us that the U.S. economy

is resilient, and that rebounds take place quickly. Missing just a few of the leading rebound days can make a significant difference in the performance of a portfolio. The only way to be assured of capturing all of the market upside is to remain fully invested, using a long-term investment plan with a portfolio diversified over several asset classes and investment styles. This material is not intended to replace the advice of a qualified attorney, tax adviser, investment professional, or insurance agent. Before making any financial commitment regarding the issues discussed here consult with the appropriate professional adviser.

John Dillard is an Christian Speaker/Author and Certified Public Accountant (All Rights Reserved). To See how he takes Christ along with him to work visit http://www.hiscpa.com/  and for his latest book Overcoming Life's 9/11's: Job's Journey visit http://www.john-dillard.com/   Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!