Watching over your nest egg

If you're saving for retirement through a vehicle like a 401(k) plan, you've made a smart decision — one that will help you gain greater financial security. But if you're like many retirement investors, watching your account balance move in any direction other than "up" causes you to second guess.

Whether retirement is many years away or just around the corner, fluctuations in the stock and bond markets often stir up a great deal of anxiety. But it doesn't have to be that way — once you understand how those markets work.

Cyclical market

Market drops often create headlines, but market gains don't always make the front page. When it comes to investing, the historical record speaks for itself — market performance is cyclical (though, of course, past performance doesn't guarantee future results). This is part of the reason why many financial advisers caution investors to avoid making knee-jerk investment decisions based on day-to-day market activity.

Let's say you invested $1 in April 1982 in investments that track indices of each of the three major asset classes — stocks, bonds, and cash. You kept that dollar in those investments for the next 30 years.

Over that time, your investment experienced gains and losses. But at the end of the day, your $1 investment made money. Generally, during periods when one asset class experiences a dip or gain, another asset class trends, or moves, in the opposite direction. Despite the ups and downs of the market, all asset classes exceed the pace of inflation over the same span.

What does all this mean to your 401(k) account? Despite what the stock market may do in the short term, keep your eyes focused on the future. Remember that the market goes through cycles, so developing a diverse portfolio — one with stock, bond, and cash investments — will cushion you from down cycles.

By being patient when market downturns occur and by staying invested, you can generally recover what was "lost" when prices dropped.

Long-term guidance

For guidance on how you should consider investing for long-term financial goals and objectives, consult a financial professional or tax adviser. If you are looking for a stockbroker or investment advisor and want to make sure he or she is properly registered in North Carolina, the Securities Division of the Secretary of State in Raleigh can tell you. Call (919) 733-3924 or www.secretary.state.nc.us/sec. For other kinds of financial planners, check with your area's Better Business Bureau.