October, 2008 - Market Update
Riding out market ups and downs
A look at the current market
In light of recent market events – from the Lehman Brothers bankruptcy and Bank of America's planned acquisition of Merrill Lynch to the government's takeover of Fannie Mae and Freddie Mac and intervention with AIG – we would like to help you understand the impact this may have on you as an investor.
The unprecedented events within the financial sector are a strong reminder of the importance of investing in a portfolio that is well diversified across a variety of sectors and securities. This lessens the impact that any one security or sector can have on the performance of any single fund in your portfolio.
Strategies for staying on track
If retirement is still far off, try not to focus on short-term events and their potentially negative impact on the value of your portfolio – as difficult as that may be. Instead, the key is to take a long-term perspective since you may have ample time to recover from any potential losses you may currently be experiencing.
If you're nearing retirement, you still don't want to suddenly abandon your current strategy due to market events. However, in general, the closer you get to retiring, the more you should consider investing a greater percentage of your portfolio in more conservative funds.
Recent market volatility reinforces the importance of staying well diversified, which is one of the most effective ways to ride out short-term market fluctuations. When you build a diversified portfolio – whether by investing in a ready-mixed fund or by investing in several funds across different asset classes – you can potentially reduce risk and increase your exposure to various market opportunities.
Another way to stay on track is to rebalance your portfolio on a regular basis – at least once a year. To do so, examine your existing account balance percentages and adjust them to align with your individual investment strategy. Of course, diversification and rebalancing will not necessarily prevent you from losing money, but they may help reduce volatility and potentially limit losses.
Finally, resist the temptation to withdraw money from your account. If you do so when the market is down, you may be selling your investments at a loss, then buying back in later when investments may be selling at a premium.
The chart below shows why it's so important to stay invested over the long term.
This information is not meant as tax or financial advice. You should consult with the appropriate tax or financial professional before making any decisions.
Before investing, consider the investment options’ or funds’ investment objectives, risks, charges and expenses. Please call 1-800-685-6474 or visit your plan’s website for an offering statement or for a fund prospectus and, if available, a summary prospectus containing this and other information. Read it carefully.
