Market volatility and investment timing

Question: We like what we have seen in the market place during the late spring, early summer of 2003. We are thinking about our risk tolerance and value your input.

Answer: My philosophy is: don't try to time the markets. There are three types of investors. Those who:

1) Are comfortable with status quo. You are generally comfortable with the ups and downs (volatility) in the market. You view your money as being "in" for the long-term. Being comfortable with the short-term fluctuations in the value of your portfolio is a good sign your investments are appropriate for you. Just be careful you're not under-exposed to equities or stock market investments. You may be comfortable with the minimal fluctuation if you're invested in money market funds and fixed income investments, such as guaranteed investment certificates. However, if your objectives, investment timeline and risk tolerance permit more equity exposure, you're missing out on the potentially higher returns of equities.
2) Adjust their strategy based upon Volatility. You tend to be uncomfortable with market volatility. This is normal. Sometimes investors think they'll be comfortable with a greater degree of risk, but then realize their tolerance is lower than anticipated. By using an asset allocation process, your financial security advisor can determine which combination of funds makes a portfolio you can live with and best suits your risk tolerance.
3) Waiting For Opportunities. You look at recent market results (not necessarily long-term trends) and get excited. As an example, you may have felt mid-2002 was a good time to buy low. In fact, there was still a drop in value up to March 2003. This is a perfect example of why timing the market can be difficult.

Disciplined versus emotional investing
Successful investing requires objectivity and a disciplined approach. But human nature often throws emotions into the process, which can lead to poor investment decisions. Emotional investing can be costly because at the time you'd feel most comfortable with the market, the price of buying would be at its highest.

History proves the market can turn around
There is nothing new about ups and downs in the financial industry. Bear markets, as they're called during an extended period of falling prices, are common occurrences in history. But history also shows the market has always rebounded, and the increase during the growth periods is generally greater than the deepest drop. It's important to remember you're not just investing for today but usually for years down the road, including the years beyond retirement. Your investments may have lots of time to benefit from the inevitable ups in the market.

The information contained in this article is intended to provide general guidelines only. The material herein is provided solely for informational and educational purposes and is not to be considered as an offer or solicitation for the sale or purchase of any investments or insurance. The application and impact of the law can vary from case to case based on the specific or unique facts involved. Accordingly, the information in this article is not intended to serve as legal, accounting or tax advice. Users are encouraged to consult with their professional advisors for advice concerning specific matters before making a decision.