Time to Come Out of Hiding? 5 Tips to Take the Emotion Out of Investing

Wealth Management

By Jodi Vawdrey

Concerned about the stock market? If so, you’re not alone. In volatile markets, it’s common to feel anxious about investing. However, successful investors know that while weathering market moves isn’t easy, it can be rewarding. The key is maintaining a long-term perspective with an investment plan designed to carry you through normal ups and downs. To help you keep your emotions in check during uncertain markets, consider the following five steps.

#1 – Take Advantage of Market Opportunities
Stock prices fluctuate for a lot of reasons — disappointing earnings, rising inflation, changing tax laws and economic uncertainty here or abroad. The good news is that these periodic slides have not lasted forever. While past performance is not indicative of future performance, historically stocks have rebounded from setbacks. It is often during times of least confidence in the markets that investors are offered the most opportunity. In fact, during market lows, you may have the opportunity to add to your portfolio with quality investments at attractive prices or rebalance your portfolio to your target asset allocation. Rebalancing allows you the opportunity to sell outperforming asset classes and buy underperforming asset classes, often resulting in risk reducing and return enhancing benefits.

#2 – Don’t Try to Time the Market
For investors, trying to outguess the market is not only a stressful strategy; it can also be an expensive one. By moving your portfolio to the sidelines, you could miss a market downturn, but you could also miss a rally. That’s because most of the market’s gains are often clustered into very short time periods. To benefit from the market’s longterm performance, it’s important to make a plan and stick with it through market ups and downs. Please remember that no investment strategy can guarantee a profit or protect against a loss.

#3 – Don’t Lose Sight of Your Goals
Some investors believe they can soften the effects of a market decline by selling off their stocks and buying more conservative investments, such as money market funds and bonds. This could prove a mistake, especially if you’re investing for long-term financial goals like retirement. Often times a market decline is followed by a swift recovery – missing out on such a recovery could be devastating to your portfolio’s return. While stock market volatility can try the nerves of even the most seasoned investors, throughout history, stocks have outperformed other major asset classes. Although stocks have historically outperformed other asset classes, they also have historically been more volatile. Investors should carefully consider their ability to invest during volatile periods in the market.

#4 – Maintain Your Mix
During difficult markets, it is inevitable that some of your investments will perform better than others. This means that the percentage of your portfolio invested in each asset class may have shifted from your original target allocation. When this happens, the risk profile of your portfolio shifts too. For instance, balanced investors may find themselves holding excess fixed income after a market correction and have too conservative a portfolio based on their goals and time horizon. That’s why it’s important to review your portfolio periodically and rebalance your holdings as needed to bring your asset allocation back in line with your goals, risk tolerance and timeframe.

#5 – Work With a Professional
A successful long-term investment strategy is a process that evolves as your needs and goals change at different points in your life. An experienced financial professional can be invaluable in helping you take an objective, unemotional approach to investing, keeping your overall performance and goals in sight, helping you avoid rash decisions during times of uncertainty and navigate the inevitable bumps in the investment road ahead.

All investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.

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