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How to Stay Calm in an Uncertain Market

By U.S. News & World Report

When markets misbehave, we feel queasy and we struggle to sleep soundly. But knowing the facts and understanding certain data will provide you with perspective. Staying calm prevents you from making irrational, short-term decisions that could derail your retirement. This information can help keep you sane when the markets — and the media — appear anything but.

Success starts with a plan. The key component to financial success is having a plan. Unfortunately, only 21 percent of couples have a retirement plan to avoid outliving their savings, according to a recent survey of 1,051 couples by Fidelity Investments. People with a plan are twice as likely to expect to live a “very comfortable” retirement, according to the survey. A plan will also keep you calm when times are tough and counteract the emotions that a volatile market can bring.

Missing the best days is costly. There is always the temptation to get out of the market now and buy back in later once the financial markets have stabilized. The problem is the timing of when to get back into the markets.

Market timing can be a costly exercise. Over the 20-year period between 1995 and 2014, missing the five, ten or 20 biggest gain days of the S&P 500 would lower your total return by approximately 40 percent, 59 percent and 81 percent, respectively. It is hard to believe that 20 out of over 5,000 trading days could derail over 80 percent of your return, but the data is compelling.

You could make the argument that missing the worst days of the markets can also be extremely beneficial. But the task of choosing the worst 20 days out of 5,000 is nearly impossible for the average investor, especially if you take into account that, historically, markets move in a positive direction. The average investor is rewarded for staying the course and remaining invested.

Recoveries happen fast. The first month of the dot-com recovery from October 9, 2002 to November 8, 2002 saw the S&P 500 return 15.2 percent, and the following 12 months of recovery generated 33.7 percent. The recovery from the great recession was even more dramatic. The first month of recovery (March 9, 2009 to April 9, 2009) generated a whopping 26.6 percent, and the year of recovery rewarded investors with a 68.57 percent return. The size of the recovery can typically be attributed to the steepness of the downturn. Again, the markets tend to reward patient investors.

You are not as smart as you think you are. The average investor is lousy at investing, according to the Boston research firm DALBAR. DALBAR’s analysis of investor behavior found that the average equity mutual fund investor has underperformed the S&P 500 by 47 percent over the last 20 years.

Investors also appear to be ignoring the concept of long-term investing, because the average holding period for equity funds is 4.19 years. For many investors the emotional reaction to fear and stress is to flee the situation. This is the opposite of “buy low and sell high.” A simple refresher: If the goals for your investment capital will not allow you to keep your money fully invested for five to seven years, you do not need to invest in financial markets.

Investing can be stressful when your investments are losing money. Volatility and market swings are features of investing that are never comfortable, but a necessary element to the long-term success and growth of your financial assets. A good way to understand the process of being an investor is to visualize that investing is a long-term journey where an investor is walking up a mountain with a yo-yo. The yo-yo is bobbing up and down, but the investor moves to higher ground as the journey continues.

A dose of fear can be a good exercise to re-evaluate your financial life. Some of the key components of success include creating a road map for your finances, a healthy level of cash reserves and diversifying your holdings to reflect your age, income and long-term goals. If you find that you are short on any of these items or you feel overwhelmed with the choices, then also consider enlisting the help of a professional financial advisor.

Brian Preston and Bo Hanson are fee-only financial planners who host the podcast, “ The Money-Guy Show “.

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How to Stay Calm in an Uncertain Market originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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