The extraordinary events of the past few weeks have tested the portfolios and the confidence of investors around the world. As the markets continue to fluctuate, keep in mind:
* Market volatility is normal, and is to be expected.
* Your investments should reflect your risk tolerance and investment time frame.
* Stay focused on your long-term goals.
In volatile markets it’s normal to feel uneasy about your investments. It’s only natural but rest assured market volatility is absolutely normal and is to be expected. As a matter of fact, whether you invest in a life cyclefund or manage your own investments, the current market conditions may actually work to your advantage. Here are seven common sense principles to help you take advantage of market conditions.
1. Clarify your investment strategy: Living with market volatility is a lot easier when you have a firm investment strategy in place. To so successfully, you’ll need to understand a few key factors like your time horizon, your goals, and your risk tolerance.
2. Match your investments to your comfort level: As a legendary mutual fund manager once put it “The key to stock investing isn’t the brain. It’s the stomach”. This statement has never been truer than in a volatile market conditions. Even if your time horizon is long enough to warrant and aggressive growth potfolio, you need to ensure that you’re comfortable with short term fluctuations.
3. Consider a Hands-Off Approach: To help ease the pressure of managing investments in a volatile market, some investors prefer to take a “hands-off” approach by investing in lifecycle funds. Lifecycle funds offer management assistance by providing investments that represent various asset classes and investment styles in a single fund based on a specific retirement date.
4. Do well “On Average”: By investing regularly over months, years and decades, you can actually benefit from a volatile stock market. Through a time tested investment strategy known as dollar cost averaging, you simply put a fixed amount into each of your investments regardless of how the market is doing. Over the years your money buys more shares when prices are low and fewer when prices are high. As a result, the average price per share of your investments may be lower than if you invested all your money at once.
5. Don’t Try To Time The Market: No one can consistently predict the market, not even the experts. Yet many investors think they can guess what will happen next! Unless you know preisely when to buy or sell, you can and will probably miss the market. Most of the market’s gains occur just a few strong but unpredictable tradin days here and there. This means you have to invest for the long term and stick with it during ups and downs in the market.
6. Diversify, Diversify, Diversify: One way to protect yourself from market down-turns is to own various types of investments. First consider spreading your investments accross the three different asset classes - Stocks, bonds, and short term investments. Then to help offset the risk even more diversify the investments within each asset class.
7. Invest For The Long Term: To help calm the jitters caused by short term fluctuations, it’s best to focus on long term trends and your long term goals as market volatility decreases over time. Dramatic short term changes can be positive or negative and historically, time has reduced the risk of holding a diversified stock potfolio.
George Kissi
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