Earlier this week we saw the NASDAQ take a dive and Facebook lost 5% in one day. Volatility is part of the stock market. That’s how it’s been and I think that’s how it’s always going to be. Suffice it to say that the stock market is otherwise unpredictable and it’s something that investors are aware of. But who really needs to worry about the stock market?
Who needs to worry?
The complicated answer is, it depends. It depends on what you’re saving for, how old you are, and your time horizon.
Generally speaking, if you’re saving for retirement, the people closer to retirement need to pay attention to the market more than the younger people. That’s also why asset allocation is important. The closer you are to retirement, the more money you should have in less risky investments.
If you have a short-term goal you’re saving for then you have to be a little more careful. If you’re saving for college, for example, the closer you get to having to use those funds to pay for college, the more conservative you’ll have to be.
What happens in the stock market only concerns people with a short time horizon. I actually should phrase it differently. What happens in the stock market SHOULD only concern people with a short time horizon.
When I say all of these things, I’m specifically talking about broad-based financial planning. People who are saving for a particular goal and are using asset allocation for their investments. Meaning they’re selecting mutual funds or ETFs that follow some sort of index. If you’re investing in specific stocks or thematic ETFs, then you probably have to pay a little more attention.
And I’m not saying that people with long-term time horizons shouldn’t pay attention to their accounts. I’m simply saying that they shouldn’t live and die on what the value of their account is day in and day out. Don’t worry about the stock market.
Why Financial Literacy is Important
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