I’ve been investing in stocks through mutual funds for more than 30 years. I’ve known all along that periodic swoons come with the territory. I’ve experienced the October 1987 crash, the 2000–2002 bursting of the tech-stock bubble, and the kerflop of stocks accompanying the 2007–2009 credit crisis and “Great Recession.”
Even so, it’s never easy to see a fall in stocks slice into one’s retirement portfolio. But if getting older has an upside, it’s that experience has taught me some coping mechanisms.
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I read the headlines, same as you. Investors are panicking. During the drive in to work today, I listened to a radio business show. A correspondent talked about the flood of selling and the deep sense of fear in financial markets. Another expert spoke about investors cashing out and moving assets to the sidelines.
Yes, it is true that in volatile markets, there is more trading. And what is true in the markets is also true at Vanguard. In our 401(k) business, for example, the number of participants making a change in their portfolios, and the dollars they were moving, jumped five- or six-fold on the worst days for stocks. A similar pattern emerges in our retail business. These statistics are the source for headlines about shifting investor sentiment.
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Investors have every right to feel anxious about the markets.
First, we had the endless drama and squabbling over the federal debt ceiling. An agreement was reached, but before we could take a collective sigh of relief, the equity markets tumbled more than 4% last Thursday amid mounting concern over the fiscal health of several European countries. Late the following day, S&P downgraded its rating on U.S. debt from AAA to AA+ status. We worried over the weekend, and on Monday volatility was in full force, and the equity markets gave up another 6%. It’s enough to make any investor cry “uncle.”
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In my January 5 post, I wrote about big developments shaping retirement in 2011. In this and an upcoming post, we’ll look at simple retirement planning tactics individual investors may want to consider.
1. Savings rates. There’s a widespread myth that you can somehow reach a secure retirement by tinkering with your portfolio. Portfolio management is important, of course, but it’s priority number 2 or 3. Above all, the key to financial security in retirement is adequate savings.
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Federal Reserve data indicate that between January and early May, bank savings deposits rose by almost $170 billion. At the current rate, new deposits for 2009 will exceed those in 2008, which totaled almost $330 billion.
Clearly, you’re voting with your money. While many of you have stayed invested, others have either withdrawn from the market or stopped committing new investment to the market—and, in some circumstances, both.
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