“Always focus on your objectives, not your emotions”
and “Dont make impulsive decisions” are among “some very
important principles of investing” cited March 14 by Roddy Cummins, the
Southern Baptist Convention Annuity Boards executive officer for investment
services, concerning the rampant downward turn in stock prices that began March
9.
“Always focus on your objectives, not your emotions”
and “Dont make impulsive decisions” are among “some very
important principles of investing” cited March 14 by Roddy Cummins, the
Southern Baptist Convention Annuity Boards executive officer for investment
services, concerning the rampant downward turn in stock prices that began March
9.
The Dow Jones Industrial Average plummeted 317 points March
14, 436 points on March 12 and 213 points on March 9, gaining back just 82 points
March 13 and 57 points March 15. Sizeable losses also hit the Nasdaq and Standard
& Poors 500 Index.
Such losses are not unprecedented. Less than a year ago, the
Dow Jones Industrial Average recorded its biggest one-week loss 805 points
in mid-April. And, when the Dow Jones dropped below 10,000 March 14, it stumbled
to territory it had occupied just last October.
Cummins, in comments released to Baptist Press March 15, said,
“While the Annuity Board is not in a position to give investment advice,
we can remind participants and other investors of some very important principles
that should improve their chances of being successful long-term in the financial
markets.” Approximately 90,000 Baptist workers are building retirement
accounts through the board.
Six pointers listed by Cummins were:
1) “Always focus on your objectives, not your emotions.
Remember the goals that you have established and the time frame that you have
to invest. Objectives are established for times like these so that you can stick
with a plan and not be concerned with the emotion that naturally exists in difficult
market environments.
“We provide our participants with a resource called LifePoints
that helps individuals determine their objectives, risk tolerances and an appropriate
investment strategy for retirement,” Cummins noted. “After completing
the LifePoints process, our participants understand their retirement objectives,
time horizon and why they selected a particular investment approach. This helps
them invest with greater confidence.”
2) “Dont make impulsive decisions,” Cummins
said. “Guard against making ad hoc changes in your portfolio. Making changes
based on short-term market movements is almost a guarantee for failure as it
promotes buying high, selling low. Selling today cannot avoid yesterdays
losses in a down market. Likewise, in an up market, you cannot buy yesterdays
performance by investing in the hottest fund.
“If you absolutely have to make changes in your portfolio,
make it in small increments,” Cummins continued. “This allows you
to dollar cost average and gives you time to more seriously consider your actions.
In taxable accounts, dont ignore the tax impact that selling may have.”
3) “Maintain a proper perspective on your time horizon,”
Cummins said. Specifically regarding retirement participants, these assets are
to serve needs for a long period of time. Make sure your objectives and actions
are consistent with your time horizon.”
4) “Dont count your losses. Tallying up how much
has been lost in your account serves no purpose. If you want to measure the
progress/status of your investment account, focus on the large gains realized
in the equity market over longer periods of time. The S&P 500 Index, despite
a loss of about 20 percent from the market peak nearly 12 months ago, has earned
an annualized return of about 16 percent over the past five years.”
5) “Maintain realistic expectations about market behavior,”
Cummins said. “Equity investments are by nature more volatile than other
asset classes such as cash and bonds. This means they will move up and down
over time. We have been through an unprecedented period of prosperity in U.S.
financial markets. In years immediately preceding 2000, volatility was almost
entirely on the upside, with the S&P 500 Index posting nine consecutive
years of positive returns, with only six negative quarters. This was not a normal
performance pattern.”
6) “Understand the benefits of diversification. While
it may seem that asset classes run in concert with one another, a well-balanced
and diversified portfolio that includes U.S. equities, non-U.S. equities and
bonds does provide an excellent cushion in market declines,” Cummins said.
The Annuity Board offers 14 fund choices for retirement participants
covering various asset classes in the global financial markets. For 2000, 10
of the 14 funds exceeded their benchmark indices in their respective categories,
including each of the four blended funds, Cummins said.
Average annualized gains for the Annuity Boards four
blended funds, as of Feb. 28, were: Flexible Income Fund, 4.64 percent for the
previous year, 5.61 percent the previous three years, 7.08 percent since inception.
Growth & Income Fund, 1.46 percent for the year, 5.62 percent the previous
three years, 9.03 percent since inception. Capital Opportunities Fund, -3.41
percent for the year, 5.41 percent the previous three years, 10.08 percent since
inception. Global Equity Fund, -8.22 percent for the year, 4.