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Keep emotions, impulsive decisions in check as stocks slide, exec says

DALLAS (BP)–“Always focus on your objectives, not your emotions” and “Don’t make impulsive decisions” are among “some very important principles of investing” cited March 15 by Roddy Cummins, the Southern Baptist Convention Annuity Board’s executive officer for investment services, concerning the rampant downward turn in stock prices that began March 9.

The Dow Jones Industrial Average plummeted 317 points March 14, 436 points on March 12 and 213 points on March 9, gaining back just 82 points March 13 and 57 points March 15. Sizeable losses also hit the Nasdaq and Standard & Poor’s 500 Index.

Such losses are not unprecedented. Less than a year ago, the Dow Jones Industrial Average recorded its biggest one-week loss — 805 points in mid-April. And, when the Dow Jones dropped below 10,000 March 14, it stumbled to territory it had occupied just last October.

Cummins, in comments released to Baptist Press March 15, said, “While the Annuity Board is not in a position to give investment advice, we can remind participants and other investors of some very important principles that should improve their chances of being successful long-term in the financial markets.” Approximately 90,000 Baptist workers are building retirement accounts through the board.

Six pointers listed by Cummins were:

1) “Always focus on your objectives, not your emotions. Remember the goals that you have established and the time frame that you have to invest. Objectives are established for times like these so that you can stick with a plan and not be concerned with the emotion that naturally exists in difficult market environments.

“We provide our participants with a resource called LifePoints that helps individuals determine their objectives, risk tolerances and an appropriate investment strategy for retirement,” Cummins noted. “After completing the LifePoints process, our participants understand their retirement objectives, time horizon and why they selected a particular investment approach. This helps them invest with greater confidence.”

2) “Don’t make impulsive decisions,” Cummins said. “Guard against making ad hoc changes in your portfolio. Making changes based on short-term market movements is almost a guarantee for failure as it promotes ‘buying high, selling low.’ Selling today cannot avoid yesterday’s losses in a down market. Likewise, in an up market, you cannot buy yesterday’s performance by investing in the hottest fund.

“If you absolutely have to make changes in your portfolio, make it in small increments,” Cummins continued. “This allows you to dollar cost average and gives you time to more seriously consider your actions. In taxable accounts, don’t ignore the tax impact that selling may have.”

3) “Maintain a proper perspective on your time horizon,” Cummins said. Specifically regarding retirement participants, these assets are to serve needs for a long period of time. Make sure your objectives and actions are consistent with your time horizon.”

4) “Don’t count your losses. Tallying up how much has been lost in your account serves no purpose. If you want to measure the progress/status of your investment account, focus on the large gains realized in the equity market over longer periods of time. The S&P 500 Index, despite a loss of about 20 percent from the market peak nearly 12 months ago, has earned an annualized return of about 16 percent over the past five years.”

5) “Maintain realistic expectations about market behavior,” Cummins said. “Equity investments are by nature more volatile than other asset classes such as cash and bonds. This means they will move up and down over time. We have been through an unprecedented period of prosperity in U.S. financial markets. In years immediately preceding 2000, volatility was almost entirely on the upside, with the S&P 500 Index posting nine consecutive years of positive returns, with only six negative quarters. This was not a normal performance pattern.”

6) “Understand the benefits of diversification. While it may seem that asset classes run in concert with one another, a well-balanced and diversified portfolio that includes U.S. equities, non-U.S. equities and bonds does provide an excellent cushion in market declines,” Cummins said.

The Annuity Board offers 14 fund choices for retirement participants covering various asset classes in the global financial markets. For 2000, 10 of the 14 funds exceeded their benchmark indices in their respective categories, including each of the four blended funds, Cummins said.

Average annualized gains for the Annuity Board’s four blended funds, as of Feb. 28, were: Flexible Income Fund, 4.64 percent for the previous year, 5.61 percent the previous three years, 7.08 percent since inception. Growth & Income Fund, 1.46 percent for the year, 5.62 percent the previous three years, 9.03 percent since inception. Capital Opportunities Fund, -3.41 percent for the year, 5.41 percent the previous three years, 10.08 percent since inception. Global Equity Fund, -8.22 percent for the year, 4.71 percent the previous three years, 10.95 percent since inception.