Investors in the last few years have been through the ringer.
First we had a booming economy, technology rally, technology bubble burst, economic slowdown, war, recession, low interest rates, rising dollar, terrorism etc. then we had the energy boom, commodity prices spike and interest rates start to rise.
If you plan your finances based on the news you would have one tough ride. But if your finances are based on a plan that you follow on a regular basis, you would have felt more comfortable.
This brings me to a point. What are investors looking for these days.
First and foremost is that investors want to be comfortable with their finances. The two main parts of a retirement planning professionals job is to manage emotions and expectations and develop and follow a plan.
So let me ask you a few questions.
Are you comfortable with your finances?
If the answer is no, then are you comfortable with your plan. If you answered no to both questions then maybe you should look at your risk tolerance.
Most investors had a higher risk tolerance when the markets were booming. It is a natural reaction. Now investors are looking at lower risk tolerances. This has an effect on the markets, since the market is an emotional animal, it senses that investors are going to safer investments. That is why in the past year we have seen investors flock to bonds, income trusts, money market funds and GICs.
However there are always two sides of the coin to examine here. Remember the technology boom? The peak of the technology bubble showed the highest sales of technology mutual funds at the peak.
Most investors were getting in at the tail end, after the rise. Well if we can learn from that you have to wonder that the most recent figures for mutual fund sales, the resource funds were invested in this past month at record high numbers. Are we doing it again?
In the last month, most major stock markets around the world had a high degree of volatility and risk.
Make sure you put some balance into your portfolio. The timing is amazingly similar to what happened in April 2000 with the fall of the technology markets.
So the next time you examine where everyone else is investing, make sure it fits with your financial plans and makes sense to you.