Riding the ups and downs of the stock market is a game that the majority of investors play throughout their lives. Some of us feel inclined to replace stock market risk with security as we grow older and closer to retirement—whether that means moving just a portion of our money to safe investments or all of it. Either way, there’s no question that the stock market is volatile by nature, which is reflected especially in its actions as of late. In February 2018, the stock market saw six 1,000 point swings during that month alone. In addition, the VIX volatility index measured more than 450 percent movement since the beginning of this year until now, indicating extreme volatility. In this volatile stock market, there are certain mistakes you need to avoid in order to maintain the nest egg you have worked hard to cultivate. We’ll look at three of those today as the first part of a two-part series.
- Burying your head in the sand. Burying your head in the sand in terms of the stock market means putting your money in and forgetting about it. It’s not a good idea to be passive about the money you have invested in the market, especially if you are in your 50s, 60s or 70s, either on the verge of retirement or in retirement. At age 22, you might be able to invest your money and let it ride, but the difference between ages 22 and 62 in that scenario is time to recover. If you lose half of your money in the stock market at age 22, you have time to recover, whereas if you lose half of your money at 62, you may never recover or get back to where you were. You can’t be afraid to take control of your financial future, and it’s easy to do that.
- Always following the crowd. You’ve heard it before: “If everybody jumped off of a bridge, would you do it?” The herd mentality is something you need to avoid when dealing with the volatile stock market. More often than not, people do what their friends, family, coworkers and neighbors are doing in terms of their investments simply because they do not know what else to do. As Warren Buffet said, “Be fearful when others are greedy and greedy when others are fearful.” Just because it is right for your family member or colleague does not mean it is right for you.
- Ignoring the experts. There’s no shame in admitting that you need expert advice when it comes to something as complex as stock market investing. Get around the people that know more than you, and seek their wisdom. Most experts agree that at least 50 percent or more of your money should be completely protected from the volatile stock market if you are 50 or older. There are three ways to do that: FDIC insurance, treasury bonds or guaranteed insurance contracts, which right now yield rates of return of around 2 percent, 3 percent and 6 to 8 percent, respectively.
Avoiding these stock market investing mistakes is critical to making sure that you keep more of the money you need to support you in retirement. Stay tuned to tomorrow’s blog, in which we will reveal the last two mistakes that you cannot not make in the volatile market.
If you are interested in learning more about how you can protect your money while still earning a reasonable rate of return, the Ty J. Young Inc. team can help. Call us today at 877-912-1919!