Curtis D. Sharp
Executive Officer for Denominational and Public Relations
214-720-2127
Curt.Sharp@GuideStone.orgUpdated: Market resumes decline after three-week rally
March 30, 2009
DALLAS — Renewed concerns about the viability of the auto and financial industries weighed heavy on Wall Street investors Monday as the Dow dove more than 250 points — more than 3.25% — in trading. The Nasdaq market declined more than 2.8% and the S&P 500 slid almost 3.5%.
Industry analysts blamed Monday’s decline on concerns about the continued viability of both General Motors and Chrysler. The Obama administration rejected turnaround proposals from the two companies and hinted one or both might need to enter bankruptcy for reorganization. Additional concerns surrounding the banking industry also weighed on investors’ minds. Markets began sliding at the markets’ open and continued their declines throughout the day.
While recent market performance may be confusing for stock and stock mutual fund investors, it’s important for long-term investors to rely on their investment strategies and not make decisions based on short-term market changes, good or bad.
“Certainly, many investors are alarmed by the recent volatility in the markets,” said Rodric E. Cummins, chief investment officer of GuideStone Financial Resources. “The important thing for investors is to remain calm, consider your financial goals and not let your emotions guide investment decisions.”
GuideStone continues to stress important principles for navigating today’s troubled markets:
- Always focus on your objectives, not your emotions.
Specifically regarding retirement participants, these assets are to serve needs for a long period of time. Make sure your objectives and actions are consistent with your time horizon. Participants can periodically review their risk tolerance by utilizing GuideStone’s Investor Profile Quiz, found in the Fund Choices booklet. Participants also can request a copy of Fund Choices by calling GuideStone’s Customer Relations specialists at 1-888-98-GUIDE (1-888-984-8433).
Consider that over long time periods the stock market has been friendly, yielding many more positive returns than negative ones. A look at the last 80 years, 1928 to 2008, reveals:
- 89% of the five-year periods and 96% of the 10-year periods yielded positive returns.
- 100% of the 20-year periods yielded a positive return.
Essentially, you could choose any five-year period of time between 1928 and 2008, and almost nine out of 10 of them would show growth in an investor’s portfolio.
Source: Ned Davis Research, Inc.
While past performance is no guarantee of future performance, the market itself has been resilient through the years.
- Avoid making impulsive decisions.
Guard against making ad hoc changes in your portfolio. Making changes based on short-term market movements is almost a guarantee for failure as it promotes “buying high and selling low.”
The performance of your account moving forward will be determined based on results of the financial markets in the future, not the past. Selling today cannot avoid yesterday's losses in a down market. Likewise, in an up market, you cannot buy yesterday's performance by investing in the hottest fund.
If you absolutely have to make changes in your portfolio, consider making them in small increments. This allows you to dollar cost average and gives you time to more seriously consider your actions.
Getting out of the market during roller-coaster rides is seldom a smart move. What happens if you’re out of the market and the market goes up? Consider an investor who invested in an S&P 500® Index fund from January 1988 until December 2008. An investor who parked his money there for all 5,268 trading days would have an average annualized return of 8.43%. That period includes the tech bubble burst of 2001, the Sept. 11, 2001, terrorist attacks and includes much of the recent market downturn.
On the other hand, consider another investor who got jittery every time the market pendulum swung from profit to loss. He missed the 10 best days over the course of those 20 years and the average annualized return drops to 4.88%; miss the 30 best days, and the average annualized return is 0.59% — less than the rate of many bank certificates of deposits.
Source: Westwood Holdings Group, Inc.
Please note, it is not possible to invest directly in an index and this illustration is not indicative of the performance of any particular investment.
Tallying up how much has been lost in your account serves no purpose. If you want to measure the progress/status of your investment account, focus on the gains realized in the equity (stock) markets over longer periods of time.
“It may seem difficult as investors watch their account balances decline, but the reality is that a focused investment discipline, diversification, and persistence will likely be the key to weathering this and other storms,” Cummins said. “While lower market prices do cause uncertainty, this can also be an excellent time for opportunistic investors to move into the market while values are off their highs.”
Market volatility and indiscriminate selling of assets by others often creates investment opportunities that can be captured by insightful investors whose long-term financial objectives are properly tuned to long-term investment strategies. Consistent contribution to a retirement plan affords investors a systematic way of taking advantage of investment opportunities as markets ebb and flow.
- Maintain realistic expectations about market behavior.
Financial markets move up and down over time in response to social, political and economic events. Further, equity investments are by nature more volatile than other asset classes such as cash and bonds. Equity investors should be able to accept significant short-term fluctuations in the value of their portfolios.
“Markets negatively react to uncertainty,” Cummins said. “As situations begin to return to normal, we expect to see the markets stabilize and, if history is any guide, begin to return to profitability.”
Investors may still be confused. GuideStone offers a simplified approach to investing over the long-haul.
Many times the demands of ministering to a congregation or preparing three sermons a week leaves you with little time to think about how you are going to invest for your retirement. That’s why GuideStone Funds launched a new series of mutual funds, the MyDestination FundsTM. These funds are date target or life cycle funds which are diversified “funds-of-funds” that have an asset allocation that gradually becomes more conservative as you approach and move through retirement. You simply choose the fund closest to your retirement date, make appropriate contributions, and the asset allocation is adjusted to become more conservative as you approach that retirement date. The MyDestination FundsTM may be a smart choice for an investor who desires a simple investing approach, wants professional management with automatic reallocation and is willing to pay an additional expense in order to receive a more comprehensive level of asset management services.
Hopefully, you will use these principles as you consider what to do with your retirement account.
MyDestination Funds™ attempt to achieve their objectives by investing in the GuideStone Select Funds. By investing in these fund-of-funds, you will incur the expenses of the MyDestination Funds™ in addition to those of the underlying funds. You may invest in the Select Funds directly. MyDestination Funds™ are also subject to the risks of the underlying funds they hold.
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You should carefully consider the investment objectives, risks, charges and expenses of GuideStone Funds before investing. For a copy of the prospectus with this and other information about the funds, please download a prospectus (pdf) or call 1-888-98-GUIDE (1-888-984-8433). You should read the prospectus carefully before investing. |
Shares of GuideStone Funds are distributed by PFPC Distributors, Inc., a registered broker-dealer and underwriter of the funds, 760 Moore Road, King of Prussia, PA 19406.
Word Version: Updated: Market resumes decline after three-week rally