As Stocks Slump, Stick With Your Long-Term Plan

There’s no sugar-coating January: It was a pretty bad month for stocks. If you have your retirement savings in the stock market, January may have led you to reconsider your investing strategy. Most major stock indexes fell more than a full percentage point and were in sharp decline in the final trading days.

What should you do when you’re moving closer to retirement and the markets are moving in the wrong direction? Consider the following:
In the short term:
–Don’t panic. Yes, this sage advice bears repeating. We all know rationally that panic is never a good response but it’s human nature that in times of stress we forget that wisdom and focus on doomsday scenarios. While it’s always advisable to review our investing strategy, rash moves are never wise. Keep in mind that investors who sold their stocks in the worst days of the 2008 market swoon missed out on some historic gains racked up over the next few years.
–Consider doing some bargain shopping. If the stock market always went up and up and up, the cost of your investments would steadily increase. Most market downturns are relatively short-lived but they do offer a good time to buy at a relative discount. This could make sense for your portfolio.
Many stocks with long-term growth potential are significantly off their all-time highs right now. Growth stock 3M (NYSE: MMM), for example, is off more than 2% from the start of the year.
In the medium term:
And if the slump continues, see it as a good time to review market fundamentals. “Don’t panic,” and “buy low” are perennial good pieces of advice but if you want to take control of your financial future, you also need to educate yourself about business and economic conditions. By many measures, our economy is in flux. Oil prices are down, which is good for individual wallets, but not for all industries. Economic growth showed a surprising slowdown in the end of last year, housing seems long overdue for a strong recovery and the euro has weakened sharply against the dollar.
Many of these shifts, such as the oil price downturn, are cyclical. On the other hand, markets do change gradually and few stocks or sectors remain perennial favorites. Just think about the steel industry. Few people would consider steel a growth sector today, but for years there were two U.S. steelmakers among the Dow 30.  And while networking giant Cisco Systems is no steelmaker, it hasn’t seen much growth for years, serving as a reminder that even darlings can fall out of favor. If you’re banking on growth stocks to fund your retirement, you’ll have to check in periodically on broader trends. The trick is to separate the cyclical stocks from the dogs so you can have a better sense for which stocks are likely to recover, which have seen their best days.
So, if you are working with an investment advisor, discuss broad trends along with your specific retirement timeline in mind. If you’re investing on your own in mutual funds, review the funds’ focus. Small caps, and international and technology stocks have all had their days in the sun . . .  as well as periods in the shade. Most important, if you’re investing in individual stocks, look at your exposure to different sectors and consider whether it still makes sense.
In the long term:
–Focus on growing your wealth through stocks. That’s right. Even through downturns and portfolio adjustments, stocks remain the most promising way to grow wealth over the long term. This is not always as simple as buy and hold forever. Market fundamentals change and market darlings often have a shelf life. Your retirement investment strategy needs to be deliberate and informed. But if it’s growth you’re seeking, you will most likely have to have stocks or funds in your portfolio.
Short-term dips offer an opportunity to reevaluate, unload some losers and load up on some bargains. But they are not a time to abandon the investment class that’s consistently grown over the long term.

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