"Array of threats stir up markets." "Stocks fall, bonds rally amid Korea, Irma threats and markets wrap." What do these types of news headlines mean to an investor's actual investment decisions?
They're the type of headlines that could encourage people to call their financial advisors for fast action — or if they're enrolled in automated investing programs, to take action themselves and sell stocks in an effort to avoid losing money as stock values slide.
These headlines can often stir emotions that make people want to change their investment strategy. They have the potential to cause a knee-jerk reaction in financial advisors' clients, which could negatively affect their returns over the long run.
For long-term investors, daily headlines are distractions. History has shown that acting upon market news can be detrimental to a retirement plan. A successful retirement is based upon a well-thought-out financial plan and having the discipline to stay with it — long-term.
This graphic below shows, over a 20-year period, how staying with investments in several different asset classes and different asset allocations performed compared to the average investor. What is striking is that the average investor, over that 20-year period, just barely beat the rate of inflation.
The lesson learned is that investors need to focus on their long-term goals and focus less on moving in and out of the market based on the latest news. If headlines show stocks sliding, here are three steps an investor can take, working along with their financial advisor, to make the best investment decisions for their portfolios.