1. JA N UA RY 2 0 1 2
How Do You Handle
Market Volatility?
During the past year, markets have
fallen and rebounded like bungee
jumpers. The emotion evoked by
volatile markets may divert some
Brian D LaHue investors from their long-term financial
Financial Representative goals. Those who stay focused, however,
may find some terrific opportunities.
(812) 738-2198
VOLATILITY CAN SPARK IRRATIONAL DECISIONS
blahue@lincolninvestment.com
Volatility sometimes causes investors to make decisions that contradict their long-term
financial goals.1 Consider George, a fictional 45-year-old investor, whose long-term goal is to
accumulate adequate savings for retirement. His investments need to grow by 6 percent each
year to reach his retirement goal at his current rate of saving. Several years ago, however,
Automatic George moved his portfolio into conservative investments with a much lower expected return
because he was worried about market volatility. Behavioral economists might say that this was
Investing
irrational behavior because:
By continuing to
1. George was focusing on short-term market fluctuations instead of his long-term investment
invest, George goal.
may lower his 2. George had the means to manage risk effectively and the potential to earn a more attractive
average cost return over the long-term by investing in a risk-appropriate, well-diversified portfolio.
per share. When George refocuses on his long-term goal, he may have to increase his savings
contributions and attempt to earn a higher return by investing more aggressively (which may
be an inappropriate risk level for him) or choose to retire later in order to achieve his long-term
Amount Price Per # Shares goal.
Invested Share Purchased
January $250 $6.00 41.7 VOLATILITY CAN CREATE OPPORTUNITIES
February $250 $6.50 38.5 Periods of market fluctuation can create buying opportunities for investors who keep their eye
March $250 $6.75 37.0 on the long-term. For example, if George had not reallocated his portfolio, he might have
April $250 $6.25 40.0 benefitted from lower investment prices. Market fluctuations often create opportunities for
May $250 $6.00 41.7 individuals to invest in undervalued investments.
June $250 $6.50 38.5
July $250 $7.00 35.7 George may also have been able to lower his overall cost by investing more in opportunities
August $250 $7.25 34.5 he believed would be strong long-term performers. As the table shows, George might have
September $250 $6.50 38.5 lowered his average cost per share, which means more growth over time.
October $250 $5.75 43.5
BEWARE OF THE SWORD
November $250 $6.75 37.0
Market volatility is a double-edged sword that provides investors with opportunities to make
December $250 $8.50 29.4
both rational and irrational decisions about portfolio management. Utilizing a financial advisor
Total: $3,000 456 shares
can provide the necessary guidance to help remove emotion from the decision-making
Average cost $3,000 divided by 456 shares process.
per share: = $6.58/share
1
Morningstar, More Ways of Managing Loss Aversion, www.morningstar.com, December 15, 2011

2. PERSPECTIVE | JANUARY 2012 2
IRAs Are Versatile Tools
Anthropologists have long said that • Traditional IRA: Contributions to a traditional IRA are
using tools is a sign of higher intelligence deductible if you are not covered by an employer’s
because it shows an understanding of retirement plan, have earned income and are under age
the relationship between an object and 70½. If you are covered by an employer’s plan, then
its effect. The same can be applied to deductibility depends on adjusted gross income.2 Any IRA
financial matters. For example, money earnings will grow tax-deferred until they are withdrawn,
was created to make trade easier; taxes which is generally at retirement.
allow the government to raise revenue • Roth IRA: Contributions to a Roth IRA are not deductible.2
and influence consumer spending; and Qualified Roth IRA distributions are tax-free as long as
credit cards allow people to purchase certain conditions are met.2
goods today and pay for them later. At
Providing for Working Children
this time of year, many Americans employ
If a child has earned income through work, he or she can
another financial tool — the Individual
open an IRA. In general, Roth IRAs make more sense for
Retirement Account (IRA) — to help
young people who do not earn enough to benefit from the
them accomplish key goals, such as:
tax deductions offered by traditional IRAs. When calculating a
Saving for the Future child’s earned income, don’t include cash gifts, interest
Anyone who has earned income during the year has the earned on accounts or allowances.3
option to make contributions to an IRA. For 2012, the
Passing Wealth to Future Generations
maximum annual IRA contribution is $5,000. Individuals age
When traditional and Roth IRAs are set up correctly, owners
50 or older have the option to save an additional $1,000 in
can transfer wealth to heirs, sometimes stretching
catch-up contributions.
distributions over multiple generations. After inheriting an
Reducing Taxes IRA, the beneficiary has the option to retitle the account and
IRAs can help reduce taxes today or in the future. It all take required minimum distributions as determined by the
depends on the type of IRA chosen. age of the beneficiary.4
2
Internal Revenue Service, www.irs.gov
3
Kiplinger, Can Your Child Open a Roth IRA? www.kiplinger.com, January 30, 2008
4
Forbes, 7 Mistakes with Stretch IRAs, www.forbes.com, June 28, 2011
© 2012, Lincoln Investment Planning, Inc. • Registered Investment Advisor • Broker/Dealer Member FINRA/SIPC • 218 Glenside Avenue, Wyncote PA 19095 • www.lincolninvestment.com P133_01/12
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