Stock market gains prompt diversification advice
"We know that the markets have historically rewarded those with a long-term focus, but prolonged market upswings can leave a portfolio out of balance," said O.S. Hawkins, president of GuideStone Financial Resources,
GuideStone Financial Resources can provide help for participants' long-term investment allocations through resources on the Retirement Planning and Guidance page (GuideStoneRetirement.org/InvestmentAdvice), which include GuideStone's Investment Recommendation tool.
"Markets are cyclical," Hawkins said. "In the market valleys, it can feel like they may never recover, and at the peaks, it may feel as if they may never decline again.
"Looking at your portfolio and ensuring it is properly diversified given your time horizon and risk tolerance -- and making strategic, focused changes if needed -- is a smart way to ensure you're prepared for a downturn in the markets."
Matt L. Peden, chief investment officer for GuideStone Capital Management, LLC said the market's upward movement is primarily due to several factors, including expectations that the Federal Reserve is pivoting to a more accommodative mode -- a move echoed by other global central banks -- and to a lesser degree, confidence that the trade dispute between the United States and China will come to a conclusion. The accommodative monetary policies exhibited by the central banks theoretically would increase economic activity and earnings.
"Consumer and business confidence measures remain high, which is a good sign for economic activity, earnings and eventually stock prices," Peden said. "The market tends to be positive for equities [stocks] right after expectations are for the Fed to cut rates."
That is not to say there are no clouds on the horizon, Peden said.
"We are seeing a global slowdown in economic activity, including here in the United States," he said, noting that earnings among the S&P 500 companies declined 2.6 percent year-over-year during the second quarter, the first back-to-back quarterly decline since 2016. "Our concern is that earnings drive stock prices, and we are seeing earnings decline relative to previous periods."
Peden said it is important for investors to reevaluate long-term risk/return objectives and understand that stocks will not always go up.
"Stay tethered to your long-term plan and asset allocation for long-term retirement assets," Peden advised.
Hawkins echoed those sentiments, stating, "Market fluctuations will always occur, but long-term retirement investors must keep their eye focused on their goals, including being financially ready for retirement."
One resource GuideStone retirement plan participants can consider is the MyDestination Funds, GuideStone's Target Date Funds series, which will maintain an age-appropriate portfolio diversification. The Target Date Funds provide a simpler approach to retirement planning, with investors simply choosing the Fund that corresponds most closely to their retirement date. Each Target Date Fund is a "fund-of-funds" with a diversified asset allocation that is more aggressive when the investor is younger and gradually becomes more conservative as the investor approaches and moves through retirement.
Whether markets are performing at all-time highs, in seasons of volatility or market decline, GuideStone experts recommend four basic principles for retirement plan investors.
1. Always focus on long-term objectives, not emotions. Specifically regarding retirement participants, these assets are to serve your needs for a long period of time. Make sure your objectives and actions are consistent with your time horizon.
2. Avoid making impulsive decisions. Making changes based on short-term market moves is almost a guarantee for failure as it promotes buying high and selling low. The performance of your account moving forward will be determined based on results of the financial markets in the future, not the past. Investors cannot sell yesterday's losses or buy yesterday's gains.
3. Don't count losses (or gains). Consistent contributions to a retirement plan afford investors a systematic way of taking advantage of investment opportunities as markets ebb and flow.
4. Maintain realistic expectations about market behavior. Financial markets in the short term tend to fluctuate in response to social, political and economic events. However, historically, the markets stabilize and return to profitability over the long term, focusing on the underlying fundamentals.