The economy is stalling, the stock market is falling, and the price of everyday necessities is rising. Throw in the mortgage crisis, recent bank collapses, and election year uncertainty, and you end up with a lot of folks second-guessing their investment strategies. There’s a real sense of panic and lack of control among investors today.
Meeting Your Commitments
Portfolio losses can be hard for any investor to accept — especially those near or at retirement age. But if you’re also losing money on investments that are earmarked for your grandchildren, like 529 plans, Coverdell Savings Accounts or even funds that you plan to gift for estate-tax purposes, you maybe feeling even more pressure to push your portfolio back on the positive-performance track. After all, you want to be sure you can keep the financial promises you’ve made to your kids and grandchildren.
Now let me give you two words of advice: Relax. And if necessary, reassess.
Many stocks today are selling low. That means that if you’re just setting up a savings plan like a 529 now, you’re essentially buying on sale, and that bodes well for the future. (Stocks are the only things people don’t like to buy on sale — which is something I’ve never understood.) If your grandchildren are young and won’t need the money you’re saving for 15 or 20 years, you can feel confident sticking with a strategy of investing in blue-chip, long-term mutual funds. Remember that the market is cyclical; buy for the long term, hold, and relax.
However, if your grandchildren are older, and will need to use the money in a few years, you may indeed need to reassess your investment strategy, ideally with the help of your financial professional. I never recommend trying to "time" the market, but there are some fund families that are outperforming others in their categories right now. It may be wise to take a look at them. You may also want to consider non-traditional investments, such as real estate investment trusts, Small Cap funds, and commodity funds.
Regardless of your grandchild’s age, it’s important to know what you own and understand how each investment fits into an overall strategy. If you're uncertain, reach out to your financial professional to be sure you’re on the right track.
A Teaching Opportunity
Incidentally, this is also a good time to have a conversation with older grandchildren about the stock market and how it works. If your investments have made or lost money, explain why, and what that may mean for them. It’s a valuable lesson for young people to learn that changes in the stock market are more than just up and down arrows on the evening news — they have real-world implications for them.
Yes, today’s market is extremely volatile, and most likely will remain that way at least until the election is over. But it would be a big mistake to panic and sell off your investments now, and an even bigger mistake not to invest at all.
Next article in Finance: The Right Way to Leave a Legacy
To learn about starting a college savings account for your grandchild, click here. Elsewhere on Grandparents.com, find 10 things you can pay your grandchildren to do, read about five great jobs for grandparents, and see five tips for setting up an inheritance.
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