There is no guaranteed way to handle the ups and downs of the stock market. Conventional wisdom says that what goes up, must come down. Market volatility can be a normal occurrence – but it’s tough to handle when it’s your money at stake.
All too often, volatility prompts investors to sell low. Now might be a good time to just SIT BACK AND WATCH as there could be some amazing opportunity on the back end of this volatility. Every cloud has a silver lining – for example, airlines which may be the hardest hit but will bounce back the quickest.
Here are some guidelines to follow during this unpredictable market:
When the market goes down and your losses pile up, you may feel tempted to pull out of the stock market completely and look for safer investments. The returns that accompany low-risk investments are small and may seem downright attractive when more risky investments are posting negative returns.
Before you change your investment strategy, make sure you’re doing it for the right reasons. How you choose to invest your money should be consistent with your financial goals and your financial timeline and only you can determine how much risk you can handle.
Diversification in your investment portfolio is one of the best ways you can handle market volatility. One way to diversify your portfolio is through asset allocation. Asset allocation identifies the asset classes that are appropriate for you and allocates a certain percentage of your investment dollars to each class (for example 70 percent to stocks, 20 percent to bonds, 10 percent to cash alternatives).
Asset classes often perform differently under different market conditions, spreading your assets across a variety of different investments such as stocks, bonds, and cash alternatives (for example money market funds, CDs, and other short-term instruments), has the potential to help manage your overall risk. Ideally, a decline in one type of asset will be balanced out by a gain in another, though diversification can’t guarantee a profit or eliminate the possibility of market loss.
Keep calm and carry on. As the market recovers, it’s easy to become fixated on day-to-day returns. While focusing too much on short-term gains or losses is not wise, so is ignoring your investments.
A portfolio review at least once a year and more frequently when the market is volatile or when there have been significant changes in your life. Maintaining a long-term outlook and keeping your emotions in check during wild market swings takes a strong stomach, and for many, help from a professional. Perhaps you may need to rebalance your portfolio to align it with your investment goals and risk tolerance so that it better suits your current needs. If you need help, Secure Investors Group can help you decide which investment options are right for you.
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