Why One Should Stick to Their Investment Plan | American Funds

Client Conversations

TALKING POINTS
For Better Results, Investors Should Stick to Their Investment Plan

A sound investment strategy can be the map that keeps investors focused on the path toward their long-term goals.
 


It’s a simple truth that from time to time the market will suffer unexpected dips. What can really make a difference is what is done in response to these declines. The ability to remain calm and stick with their investment plan can make a significant difference in investors’ success.

Talking points you can use:

Give your clients a new perspective on market volatility:

  • A look back at stock market history reveals a common and reassuring pattern: Over time, the market has demonstrated strength in the face of challenges, and long-term investors who remained focused on their investment plans have been rewarded. While there is no guarantee of success and past results are not indicative of future results, the strategy is a good idea for anyone who invests.
  • Don’t be alarmed by the stream of daily news tracking the market’s ups and downs. Short-term fluctuations can make anyone confused and uncomfortable. A chart showing the changes in monthly values of the S&P 500 could look like an erratic series of spikes and dips. Even a year-by-year look at returns might emphasize how much an investment has lost instead of how much it has actually grown over time. If you’re investing for the long term, then think long term — and resist the temptation to let emotion drive you from your plan for success. (Show clients how their investments have historically fared over periods of 10, 20 or even 30 years.)
  • You can help investors look beyond short-term fluctuations by sharing pages 8–13 of The ICA Guide (PDF).

Cultivate a Better Understanding of the Investment Plan

Investors, in a knee-jerk effort to avoid loss, often make poor decisions. You can replace emotion with strategy by helping to tailor a set of rules for your client to follow when making investments. This investment plan can make a substantial difference to results over the long term.

Talking points you can use:

  • Understand your investment plan:
    • is based on your goals
    • takes into account your tolerance for risk
    • factors in your investment time horizon
    • is designed to serve you through both good and difficult markets
  • Keep making regular investments:
    • Since investing for the long term is something that should be thought of in years — not one month to the next — it’s important to stay the course and keep making regular investments. (For the greatest chance of success, a plan of regular investing requires persistence, even in difficult markets. Of course, there is no guarantee you will reach your investment goals.)
    • Prices for investments tend to go up and down regularly. A program of regular investing enables you to buy more shares when the price is down and fewer shares when the price is up.
    • In uncertain markets, regular investing may be a good strategy for managing market risk.
    • Investing in a well-diversified portfolio can also reduce the effect of volatility over time.
  • It’s important to stay invested:
    • Switching or selling investments in the midst of a market decline will lock in loss because there’s no chance of gaining back value when the market reverses.
    • Nobody knows when a market recovery will happen. But to get the full benefit of that critical event, you already have to be invested.

Strategies for Sticking to an Investment Plan

Because market downturns can be unsettling, offer suggestions on how to stick to the investment plan through all kinds of market climates.

Talking points you can use:

  • Concentrate on what you can control:
    • You cannot control what the market will do next; you can control your actions. Rash decisions are often poor ones that can cost you.
    • Resist checking your account balance too often. If the daily stream of financial news makes you nervous, turn it off.
    • When emotion bubbles up, maintain perspective by remembering that the market goes through cycles of loss and recovery — but no one knows when one or the other will begin or end, so it’s best to stay calm, remain invested and stick to the plan.
  • Keep your focus on your long-term goals. Over time, most patient investors have been rewarded.
  • Manage your expectations. If you are expecting to get rich quick, you’re likely to become disappointed and take actions that will put you even further behind in reaching your goals. Work with your advisor to set realistic goals and consider that when investing long-term, slow and steady wins the race.
  • Review your investment plan once a year (preferably with your advisor), to see if it needs any adjustments. Rebalance your investments, as necessary.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

Content contained herein is not intended to serve as impartial investment or fiduciary advice. The content has been developed by Capital Group, which receives fees for managing, distributing and/or servicing its investments.