A widely followed market theory, called the “January barometer,” claims that as January goes in the markets, so goes the year. Although its success rate in predicting the market outcome for the year is notably higher than Punxsutawney Phil’s accuracy in predicting an early spring or late winter, it is still just an educated guess.
With the first month of 2015 under our belts, analysts, media personalities and investors alike are taking a hard look at the results in hopes that the January barometer will give a strong signal of what investors can expect in 2015. But should investors be chasing illusionary patterns? I recommend they should not. Here are three reasons to ignore the predictions and stick to the pursuit of long-term goals, including retirement readiness.
Patterns are a distraction. Patterns, predictions and stock-market gyrations all have one thing in common — they are a short-term distraction from an investor’s long-term goals. At the beginning of the year, take the time to sit down and prioritize your goals for the year, ideally with a financial advisor. A Voya Financial survey, in collaboration with Greenwald & Associates Inc., conducted in July 2014 of 1,008 full-time workers found that only 17 percent of workers have a formal written financial plan, so setting goals for 2015 is a good first start to get organized and plan for the long term.
Another valuable exercise is completing a risk-tolerance questionnaire. This helps align your asset allocation with your long-term investment goals, time horizon, risk tolerance and financial situation.
Trends are great in theory but difficult in practice. For the everyday investor, capitalizing on the volatility of the stock market can be extremely difficult. Market statistics and trends are a solid reference point to take into account; however, too many people put too much stress on market gains or losses in the short-term.
As with any investment, maintain reasonable expectations of your return. If you choose to follow a short-term trend, separate it from your long-term goals and don’t let it get in the way of financial security and retirement readiness.
Chasing a market pattern can be costly. Following a trend is typically an emotional choice. It’s a reaction to an action in the market. The risks involved can be beyond an individual’s risk tolerance. Many investors don’t consider what it really can cost them to chase a market pattern.
Take, for example, the cost to execute the trades. You potentially face platform fees, trading fees, commission fees and exchange fees. And then there is the possibility of taxes. Will liquidating your position create a taxable event? Ultimately, ask yourself if the potential for gain outweighs any fees and taxes you may face. It’s important that you talk to a financial advisor to consider the full range of gains and losses. There are many potential scenarios where the risk can greatly outweigh the reward.
Throughout 2015, investors will continue to be inundated with new trends occurring in the markets. Before jumping on the bandwagon of a market pattern, weigh the decision carefully and talk to a financial advisor about what the pursuit could really cost you in the long run. It’s important to remember to keep your eye on long-term investing goals. Let the day-to-day gyrations take place while you focus on creating a consistent return over the long haul.
Jacob Gold is a Voya Retirement Coach, third-generation financial advisor and President of Jacob Gold & Associates, Inc. He is the author of “Financial Intelligence; Getting Back to Basics after an Economic Meltdown,” which was published in August 2009. Gold is a certified financial planner practitioner and Series 7, 24 and 66 securities registered.
Securities and Investment advisory services offered through Voya Financial Advisors, Inc. (member SIPC)
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Look Beyond Short-Term Investment Patterns originally appeared on usnews.com
