Impulse Control
Investment Success in a Bear Market

Investment Success Relies on Impulse Control
So far, 2008 has been a volatile year for the stock market. Investors have watched large swings in prices as interest rates have dipped and housing and consumer spending have slowed over the past few months. Is it time for you to switch out of equity investments and move to safer ground?

Fight the Urge to Flight
If you're saving for retirement, it might be a good idea to think long and hard before making any investment changes. History shows that during market slumps — even during prolonged down markets — one option for a long-term investor may be to hold steady. To borrow a phrase from the world of hurricanes, blizzards and other bad weather events, it may be time to "hunker down" and ride out the storm.

Easier Said Than Done
As many behavioral finance researchers have discovered, however, holding steady during market turbulence goes against our human nature. When humans are faced with a threat — and like other retirement investors, you would probably view a drop in your 401(k) balance as a threat to future financial security — the instinctual "fight or flight" response kicks in. Since it is impossible to fight the momentum of millions of investors selling their holdings, the only logical response would be to sell your equities, too — right? Maybe not.

How Intellect Overcomes Instinct
When the instinct to flee begins to take over, you may want to consider that you’re “selling low” — or turning paper losses into real losses. In addition, you may find it helpful to review the considerations that led to your original asset allocation strategy:

• When will my 401(k) money be needed?



• What will my 401(k) money be used for — living expenses, leisure activities, or perhaps a legacy for heirs?

As you ponder these questions, remember that over the long term, equity investments have recouped losses and marched on. One way to measure the performance of the stock market has been to look at the performance of 500 company stocks selected by Standard & Poor's. The Standard & Poor’s company is a leading provider of investment research and data for investors. Their list of 500 company stocks is called the S&P 500 Index. According to Standard & Poor’s, the S&P 500 Index has declined an average of 32% during down markets since World War II; however, subsequent recoveries have seen an average gain of 155%.* Based on this research, if your original fund allocation made sense before the market began to waiver and decline, that same strategy may still make sense now.

An Objective Viewpoint
In a time of volatile markets, consider seeking the counsel of a qualified financial advisor, who can be a much-needed voice of reason. An advisor can help determine if and when it’s time to adjust your holdings, balancing market behavior with your unique needs and goals.

*Source: Standard & Poor’s. Period covers January 1, 1950 through December 31, 2007. The S&P 500 is an unmanaged index of common stocks generally considered representative of the U.S. stock market. Indexes do not take into account the fees and expenses associated with investing, and individuals cannot invest in directly in any index. Past performance cannot guarantee future results.

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