Watching from the Sidelines May Cost You
When markets become volatile, a lot of people try to guess when stocks will bottom out. In the meantime, they often park their investments in cash. But just as many investors are slow to recognize a retreating stock market, many also fail to see an upward trend in the market until after they have missed opportunities for gains. Missing out on these opportunities can take a big bite out of your returns.
Cost Averaging Makes It Easier to Cope with Volatility
Most people are quick to agree that volatile markets may present buying opportunities for investors with a long-term horizon. But mustering the discipline to make purchases during a volatile market can be difficult.You can’t help wondering, “Is this really the right time to buy?” Cost averaging can help reduce anxiety about the investment process.
Simply put, cost averaging invests a fixed amount of money at regular intervals in an investment such as a mutual fund. By buying at fixed intervals, this strategy ensures that you buy more units when prices are low and fewer units when prices are high, helping smooth out some of the ups and downs experienced during volatile markets. Please remember, no investment strategy including cost averaging can guarantee a profit or protect against a loss in a declining market.
Now May Be a Great Time for a Portfolio Checkup
Is your portfolio as diversified as you think it is? Your portfolio’s weightings in different asset classes may shift over time as one investment performs better or worse than another. Re-examine your portfolio to see if you are properly diversified and discuss with your financial advisor. You can also determine whether your current portfolio mix is still a suitable match with your goals and risk tolerance.
Tune Out the Noise and Gain a Longer-Term Perspective
Numerous television stations and websites are dedicated to reporting investment news 24 hours a day, seven days a week. What’s more, there are almost too many financial publications and websites to count. While the media provides a valuable service, they typically offer a very short-term outlook. To put your own investment plan in a longer-term perspective and bolster your confidence, you may want to look at how different types of portfolios have performed over time.
Believe Your Beliefs and Doubt Your Doubts
There are no real secrets to managing volatility. Most investors already know that the best way to navigate a choppy market is to have a good long-term plan and a well-diversified portfolio. But sticking to these fundamental beliefs is sometimes easier said than done. When put to the test, you sometimes begin doubting your beliefs and believing your doubts, which can lead to short-term moves that divert you from your long-term goals. To keep a balanced perspective, and call your financial advisor before making any changes to your portfolio.
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