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Saturday, Apr. 30, 2016

Exercise caution in markets

Thursday, September 20, 2001

The multiple attacks carried out against the United States of America on September 11, comprise one of the greatest tragedies ever to befall our nation.

Our thoughts and prayers are with everyone who was affected by these devastating events.

These attacks struck at the heart of our country's financial center. While America's stock exchanges have remained closed, world financial markets have already shown the effects of the instability brought about by these events.

Understandably, many financial services clients in the Storm Lake area are being reminded to remain calm and avoid making significant changes to their financial and investing plans at this time. Long-term investors should keep in mind that while the events of September 11 may have significant short-term impacts on the financial markets, they are not likely to have a lasting effects.

Whether the market climbs, remains steady or heads downward in the near future, the following tips can help you stay on course for your long-term financial goals:

Tip #1 Avoid trying to time the market.

Changing your investment strategy because you think stock prices may retreat is essentially market timing. And that's a guessing game that even experts can't rely on consistently.

The danger in market timing, of course, is that you'll guess wrong. For example, many market timers believed the "overvalued" U.S. stock market would weaken two or three years ago. Consequently, they may have missed out on some of the most spectacular gains in history.

Tip #2: Maintain a long-term perspective. Focusing on your long-term goals will help you resist the urge to time the market. If you are building funds for your children's college education in 10 years or for your retirement in 30 years, the market's next moves mean little to you. Your only concern should be where prices are when you begin to withdraw the money.

You can actually put market volatility to work for you by investing equal amounts regularly year after year. This strategy, called dollar-cost averaging, helps you buy more shares when prices are lower and fewer when they're higher- thus lowering your average price per share.

Of course, dollar-cost averaging does not assure profits nor protect against loss in declining markets. Since this strategy provides for continuous investment, regardless of fluctuating prices, consider your financial ability to continue to invest during low price levels

Tip #3: Keep your expectations realistic. Sticking with your plan to build wealth over time is easier when you have realistic expectations for investment returns. If you know that the U.S. stock market's performance over the last three years has been far above average, you won' be discouraged when returns revert to their norm (U.S. stocks have provided an average annual return of 11 percent over the last 72 years, according to Ibbotson Associates. Past performance is no guarantee of future results).

Tip #4: Diversify your portfolio. Keeping your portfolio diversified across stocks, bonds and cash- and different investments within each type- helps reduce your exposure to a downturn in any one asset class. While one type of investment may be at "fully valued" levels, another may be rebounding.

Tip #5: Take advantage of professional advice. A trusted financial advisor can do more than help you create an investment plan and choose suitable investments. Such a professional also should be available to address your concerns during hair-raising market events and help you sick to your plan while others are giving in to fear.

Talk to your local financial advisor before making any significant changes to your investing strategy. That is the best way to ensure that you remain on track to achieving your financial goals.