How to survive the rough market

Wall Street has had a rough go this year, but investors can expect bigger returns by waiting to pull out of the market rather than selling now.

Last year saw some rough sledding for investors: Emerging markets, commodities and gold were way down, as were eight of the nine domestic equity categories Morningstar tracks. This year hasn’t been much better.

This may make some investors feel anxious and question their strategies, but now is not the time to think about an exit plan.

The danger of ‘timing the market’

Recently, I talked to a man in his 60s who’d decided he couldn’t afford to lose more money. He was in a balanced fund — a mix of stocks and bonds — and wanted to move his money into more conservative fixed accounts until the market got better.

I asked if he’d do this if the market were on an upswing. “Of course not,” he said. “But at this rate I’ll be out of money before I’m out of time!”

I told him I’ve never known when to get into high-yield bonds, cash, gold, U.S. blue chips, and so on, and I certainly don’t know when to get in and out of the market. In fact, I’ve never met anyone who has.

But I do have an investment policy statement that dictates how I should work to meet long-term goals, rather than reacting to the market.

He shrugged his shoulders, thanked me for my time, and went on his merry way, intent on moving his money and taking a loss.

There are many investors like this, who end up shooting themselves in the foot because they pull out of the market during lows and buy in during highs. They invariably underperform, because they overreact to temporary moves and don’t take advantage of the market’s steady upward trend over time.

Here are a few tips to ensure you are taking the long view and making decisions that will pay off.

1. Ignore talking heads

Nobody knows the perfect investment strategy or where the market will be at the end of the year. Resolve to disregard talking heads shouting predictions through the TV screen.

2. Wait to withdraw

Many people let the market scare them into withdrawing money too soon. Rather than dumping equities when they lose value, take a policy-driven approach to investment. This plan should be based on your cash flow, job security, age, current financial situation, risk tolerance and goals.

3. Seek professional advice

Speak to a financial advisor about your short- and long-term goals, so that they can make sure you have money when you need it. This includes carefully developing a retirement savings strategy that takes into account your life stage, the tax implications of various retirement accounts, and asset allocation — which should change over time as you approach retirement.

Ultimately, long-term investment results are driven by the decisions we make over the course of a lifetime, more than a particular stock, bond, fund or manager. Patience and calm decision-making in the context of a well-defined plan, and reasonable expectations, will keep folks in good stead over the long haul.

Daniel Friedman is the chief executive of wealth management firm WMGNA in Farmington, Conn. This article first appeared at NerdWallet.