Are You Sabotaging Your Portfolio?
This is a guest article from Kristin Mullen
If you have a retirement portfolio, you may be getting nervous about your future due to the financial instability in Europe and how that may affect our stock market. Watching the Dow Jones industrial average swing high and low over the past few months probably hasn’t helped matters either. It may be hard to ignore these swings, but you need to remember to keep your head. You can’t let your anxiety rule your decision making. The following are some guidelines you can follow so you can be sure that you will be able to make it through a downturn in the economy and keep your long-term investment plan in check.
Stick with your long-term plan
If you want to reach your retirement goals on time, it is important that you stick to your plan. Your investments should obviously be diverse, and you need to make investments in each asset regularly. Most investors should increase their amount invested in bonds and reduce their stock holdings as they get closer to retirement. With this type of plan, you shouldn’t have to worry or make hasty decisions when the market fluctuates.
To create your own detailed long-term plan, you could decide to take on the project yourself, or, if you lack adequate investment knowledge, you could hire a financial advisor to make a plan for you. When you look for this advisor, you should try to find someone who is paid based on the services he or she provides, and do not choose an advisor who will earn commissions by selling customers other products. With their help and vast financial knowledge, it will be easier for you to ride the ups and downs of the market, and the expense will be well worth it if you don’t let your emotions get the best of you.
Maintain balance
As time passes, you may find that your mix of stocks and bonds are not balanced the way you intended because of their rate of appreciation. You may have to sell investments in one asset that is too high and buy more of an asset that is low in order to get back on track and maintain your balance. It might seem foolish to sell stocks when they are rising, but this will help you to sell high and buy low.
Be defensive
The best stocks are usually those in industries that sell products people will always need (i.e. utilities, food, pharmaceuticals, etc.), and they will usually hold up well in a recession. These “defensive stocks” have low volatility and usually pay a respectable yield.
Don’t run
This is much easier said than done, but you need to fight the impulse to sell in scary situations. The goal of all investors is to buy low and sell high, but many do just the opposite. They buy overvalued stacks at their top price, and then they sell as the market drops. Instead, you should try to buy into bear markets, especially if you are a long way from retirement. With enough time, you could watch these stocks rise tremendously. Investors who are able to tough it out during hard times might see great wealth as a reward for their bravery.
Keep some of your cash
Some investors are forced to sell some of their assets to pay for monthly bills or an unexpected emergency expense. If you keep enough cash on hand, you will never be forced to sell your investments for these reasons. However, you should also make sure that you do not keep all of your money in cash just to avoid the market’s swings. A good rule to follow is to have enough cash to cover six months of your living expenses. That way, if you should have an accident or lose your job, you will have enough saved up to provide for your family until you figure out what else you can do.
About the Author: Kristin Mullen is an author who writes guest posts on the topics of business, marketing, credit cards, and personal finance. Additionally, she works for a website that focuses on educating readers about debt consolidation.
