Waddell & Reed

Building a Plan

Build a Plan
Use history as a guide
Let time work for you
Stay committed
Consider market history
Focus on the future
Sound solutions

Build a plan to pursue your goals through all market cycles

Global investment markets have been volatile in recent years, often leaving investors confused about the right moves to make with their investments. Markets can be especially turbulent during periods of rapid economic change and political uncertainty.

It’s easy for individual investors to overreact to these market movements, becoming too optimistic when stocks begin to climb or too pessimistic when they start to fall. Those attitudes can lead to buying high and selling low — the opposite of a successful investing strategy.

Take the time to review your financial plan with your advisor to help stay on track for your long-term goals.


Use history as a guide when reviewing your investments

The sharp moves in today’s markets can challenge even the most seasoned investors. But history shows that staying focused on long-term goals can help you through turbulent markets.

A look at the S&P 500 Index over time shows that bull and bear markets haven’t lasted forever, and investing opportunities often follow the most uncertain market conditions.

The S&P 500 Index has continued an upward trend over the long term despite periods of price decline. While market downturns can be discouraging, long-term trends show that the stock market has rewarded patient investors.


Let time work for you by staying invested

Some people believe investing is a matter of timing. But even the smartest investment professionals can’t accurately predict the exact timing of market moves.

We believe long-term investment success is more likely to be the result of a consistent approach, based on time in the market – not market timing. For example, selling when markets decline can put you on the sidelines when stocks change direction – and turnarounds can happen quickly. The S&P 500 made a one-day gain of 11.6 percent on October 13, 2008, after eight straight sessions of falling prices.

Missing even a few of the stock market’s best single-day performances could have a significant effect on your portfolio.



Stay committed to your plan – good years have tended to follow bad

History shows that it’s rare for the stock market to have two bad years in a row, and even more rare to record three bad years in a row. And when the market has recovered from downturns, it historically has done so with powerful rallies

Even in the worst 20-year period the stock market has ever experienced – 1928 to 1948 – the S&P 500 posted an average annual gain of 0.55 percent. While a modest amount, remember that those two decades included the Crash of 1929 and the Great Depression of the 1930s.

 

Consider market history as you review your plan

Bear markets can test even the most steadfast long-term investors, but they historically have lasted only a short time compared with bull markets.

  • Since 1950, the 15 bear markets each have lasted an average of just 11 months.
  • The 16 bull markets during that period each have lasted an average of 35 months.
  • The average bull market gained 104.3 percent while the average bear market lost 22.1 percent.
  • Bear markets can provide investing opportunities for those ready to take them.


Focus on the future and diversify your investments

A mix of investments can provide the potential to take advantage of return differences among these investment types and help protect you from price swings in just one of them. While diversification does not ensure a profit or protect against loss, it can help reduce the overall risk and volatility of your investment portfolio.

Let’s look at the growth of $10,000 invested on December 31, 1991, through December 31, 2011. A hypothetical diversified portfolio of stocks, bonds and money market securities would have helped manage market volatility during this turbulent 20-year period.


Stick with sound solutions

We live in a time of global rebalancing, with tremendous economic growth in emerging markets; innovation across the technological, agricultural and health care landscapes; and many other rapid changes in the world marketplace. These changes often bring opportunity for the right companies and potentially for investors.

History shows that patient investors who remain focused on the long term may withstand turbulent periods and take advantage of the opportunities that global change can bring.

        

Remember a few key investing concepts:

  • Follow a solid investing strategy rather than emotion.
  • Don't let a short-term reaction overtake your long-term plan.
  • Invest regularly and stay committed to your goals.
  • Work closely with your advisor to consider all your investment options.

At Waddell & Reed, our investment team uses a disciplined, collaborative research process to track global change and its potential opportunities. Work with your Waddell & Reed advisor to create a financial plan that can help you find the right opportunities for your long-term goals.

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