There is an old Wall Street story about the time someone asked the turn-of-the-century financier J.P. Morgan “What the stock market would do?” His answer is as timely now as it was then.
“It will fluctuate” was his now famous reply. Old J.P. Morgan’s best investment advice was that the stock market would fluctuate.
The investment year of 2011 is sure to go down as one of the most volatile stock market environments in history for Minnesota company 401(k) participants. On three separate occasions in 2011, the S&P 500 index dropped more than 10% in value.
From a high on May 2, 2011 of 1370 to a low on August 9, 2011 of 1101, the S&P 500 index dropped 19.6%.
From a high on September 20, 2011 of 1220 to a low on October 4, 2011 of 1074, the S&P 500 index dropped 11.9%.
From a high on October 27, 2011 of 1292 to a low on November 28, 2011 of 1158, the S&P 500 index dropped 10.3%.
The current stock market environment is like the winter weather in Minnesota. Think about it!
It gets cold in Minnesota in the winter. Everyone who lives in Minnesota knows that fact, understands that fact, and does not try to change that fact. Most Minnesotans of all ages look forward to and enjoy the winter weather.
Like cold weather in a Minnesota winter, individual company retirement plan participants need to learn how to deal with stock market volatility and how it will affect the values in their individual company retirement plan accounts.
“Periods of Extreme Volatility” would be the winter weather forecast for the U.S. stock markets for the next few months. The stock markets will not be volatile very day, but there will certainly be days that company retirement plan participants need to prepare in advance for chilly stock market moments.
The world is a volatile place now—Afghanistan, Europe, North Korea, the Middle East, the 2012 elections, etc. Politically and economically, so many things are “up in the air” at this time in our investment lives.
The U.S. stock market has to work its way through all this volatility in order to find a meaningful bottom from which to rise. The large investors who control the buying and selling of U.S. stocks are trying to figure out which direction the stock markets will go. All that “figuring things out” takes time and produces stock market volatility.
Minnesota company retirement plan participants need to develop a stock market volatility game plan now. This game plan includes making the investment management adjustments that are necessary to become more comfortable with stock market volatility.
Analyze what you currently own in your company retirement plan account. If some of the mutual funds that you own now have not reacted well to the current stock market volatility, then you should think about selling those funds and placing the proceeds into the money market account.
Keeping what you have may be the best investment strategy over the next few months.