Don't Overreact to Short-Term Retirement Losses

Short-term losses are common in retirement portfolios. That's one of the most important things to accept in retirement investing. Part of becoming an informed investor is keeping track of the strategy and performance of your retirement account, and that type of monitoring is generally encouraged. Following your account through all of its daily and weekly fluctuations, however, is a sure path to overreaction. Though you may want to halt a short-term dip in value, you could be setting yourself up for long-term losses.

It's a natural reaction. The more you see a fund's losses, the more likely you are to start shifting monies from that fund to another. The problem with this approach is that your moves are based on past performance. The markets--and your funds--have already adjusted to whatever caused the change in price by the time you attempt to move your money. As any professional advisor will attest, trying to time the markets is anything but a long-term investment strategy.

Picture long-term strategy as the straightest line toward your retirement goals. If you react emotionally to every downturn in your portfolio, you'll veer away from that straight line, costing you in real dollars at the time of your retirement.

Three Tips on Avoiding Trouble

Think of your account balance in terms of years, not hours or days. Your goal should be efficiency in maximizing your account's value so it can support you in retirement.

1. Short-term dips are just that--they won't matter twenty years from now. It's better to ensure that you're investing in a way that fosters long-term growth, which means a diversified investment portfolio consisting of both stocks and bonds. Of course, your diversification should vary according to your own risk tolerance and how much time you have to invest before retirement.