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The Shutdown and Your Retirement Portfolio

Reprinted courtesy of MarketWatch.com.

To read the original article click here.

This month’s partial federal shutdown provides a valuable lesson for investors. It’s an immediate example of a real crisis that affects the markets and at the same time leads millions of mistaken investors to think they should do something about it.

Let me start by telling you what I am doing about it as an investor. Nothing. I’m staying put.

I care deeply about our dysfunctional government, about the many thousands of government and civilian workers who are suddenly in economic limbo. I care about the millions of people who are struggling to meet their financial goals in a mediocre economy. And I care a lot about the outlook for an economic system that is still on life support.

However, I don’t believe any of that should prompt me to change my investments.

Like any crisis, the current one calls for trust and perspective — two attitudes that are among the most important things that we investors can bring to the table.

The scary bear market of 2007/2008 produced rampant fear. Many people, through no fault of their own, suffered serious financial setbacks. Many investors jumped ship, scared by enormous uncertainties.

Back then, nobody could have plausibly predicted the robust and sustained recovery that started in 2009. In retrospect, investors who stayed the course despite their fears were rewarded.

Certainly I have no idea how the current situation will play out. Yet I am quite sure that investors who have sound plans and stick to them now will, in the end, be glad that they did.

This outlook, of course, is much easier to accept after we know how things turned out. That’s why our attitudes are so important.

Our attitudes shape our lives and our behavior almost automatically. Even when we aren’t watching, they exert a very powerful influence on the quality of our lives. Let’s talk about a few useful attitudes of successful investors.

Perhaps the most basic attitude required in a crisis is TRUST.

As I wrote in my 2011 book, Financial Fitness Forever, trust can be tricky. If you trust too easily or trust the wrong idea or person, you can quickly get yourself into big trouble. Yet without trust you cannot build a good future.

Investors who adopt a bunker mentality have little likelihood of long-term success. When you invest money, you take a leap of faith. And in order to take that leap you must be confident you’ll have somewhere safe to land.

Personally, despite the current situation, I still have faith that our government and our economy and our people will manage to find a way to deal with our problems. I can’t prove that. But I have to believe it. And if that’s the case, I’m quite certain that in the long run today’s investors will be better off by staying the course than by bailing.

Another essential attitude in times like these is PERSPECTIVE.

Perspective is easy to lose in the excitement of the daily news. However, the most successful investors I know are those who can look beyond their short-term concerns and focus on what’s most likely to bring them success in the long run. 

When things are in flux, when the future is unknown (in other words, every single day we are alive), another terrific attitude to have in your mental tool kit is PATIENCE.

Rome, as they say, wasn’t built in a day. Neither was any retirement portfolio I know of. Successful long-term investors know that time is their ally. They can wait for results. The least successful investors are more likely to be upset – or elated as the case may be – by whatever is happening today.

If you are following a sound plan to invest money that you won’t need for years or decades, what happens to your investments today or next week or next month isn’t of huge consequence. Do you remember what was happening in the market exactly 10 years ago today? I didn’t think so. I don’t either, and by now it really doesn’t matter.

Finally I want to recommend an attitude that seems lacking in high circles these days, regardless of your political views: COMMON SENSE.

I’m almost afraid to mention this phrase, which can be used to justify almost anything you may feel like doing. That’s the bad side of common sense. I recommend the good side of common sense.

Again and again I have noticed that successful investors apply common sense as a reality check before they make important decisions. Often you will hear about investments that seem to offer attractive returns with hardly any risk.

Ask yourself this: If an investment is really that wonderful, why haven’t the professional money managers snapped it up? I can virtually guarantee that billions of dollars would instantly flow into any low-risk investment paying significantly more than banks, government bonds and corporate bonds.

If an unrealistic opportunity like that is offered to you, common sense should lead you to ask: If the “big money” doesn’t want that opportunity, should you?

Our current crisis won’t last forever. But right now it calls for trust, patience and perspective. Common sense, though it isn’t always in style, should also be your constant companion.

I am sticking with my long-term investment plan and doing my best to maintain the attitudes that experience tells me will help my cause. I hope you will do the same.

Richard Buck contributed to this article.