How to React When Investments Lose Money

I used to be a little bit obsessive about checking account balances, including retirement plans.  At least three or four times a week I would log in my brokerage’s website and view my balance.  Here lately that has become a panic-inducing process.  After seeing 401k value disappearing before my very eyes day after day it is tempting to start moving things into more conservative investments, even though I have a while before worrying about retirement.  Others aren’t so lucky.  It is admittedly getting tougher and tougher to stomach the call to “stay the course,” but there are a couple strategies that make things a little easier.

Keep Your Head Down

I played a little football in high school, and one of our offensive coaches used to teach our running backs to put their head down, hide behind a big lineman, and drive his legs hard for a short yardage first down.  That’s what I feel like doing now!  I’m going to keep my head down (avoid taking in too much financial news, checking balances daily, etc.), find a big lineman to protect me (diversification) and keep driving towards our goal line–an early retirement.

What About College Savings?

College savings plans are a different animal because often times investors are dealing with a shorter time frame. That is the case with us.  Our oldest child is just ten years from college, and we were counting on some growth stock mutual funds to help us save for her future tuition.  With the way our economy is headed now, it may be a while before we enjoy much growth in the funds we have already invested in.  However, with only ten years until college it is too late to save only cash, and too early to go with an ultra-conservative portfolio.  Bottom line is we are just going to have to hope for some better returns in the near future.

Emergency Savings

There has never been a better time (in our life time) to have a healthy emergency fund in place.  Most financial experts agree families should sock away 3-6 months of expenses in a highly-accessible account.  We tend to lean towards the 6 month end of that scale as we are living on one income, and because we lack short term disability policies through my employer that could helps us ride out a short-term stop in pay due to health issues.  Add to that a shaky job market and unstable economic conditions, and six months worth of expenses in the bank sounds pretty good.

Photo courtesy of epicharmus