Keeping your cool can be hard to do when the market goes on one of its periodic roller-coaster rides. Here are 11 ways to help keep yourself from making hasty decisions that could have a long-term impact on your ability to achieve your financial goals.
1. Have a game plan
Having predetermined guidelines that recognize the potential for turbulent times can help prevent emotion from dictating your decisions. For example, you might take a core-and-satellite approach, combining the use of buy-and-hold principles for the bulk of your portfolio with tactical investing based on a shorter-term market outlook. You also can use diversification to try to offset the risks of certain holdings with those of others. Diversification may not ensure a profit or guarantee against a loss, but it can help you understand and balance your risk in advance. And if you’re an active investor, a trading discipline can help you stick to a long-term strategy.
2. Know what you own and why you own it
When the market goes off the tracks, knowing why you originally made a specific investment can help you evaluate whether your reasons still hold, regardless of what the overall market is doing.
3. Remember that everything is relative
Most of the variance in the returns of different portfolios can generally be attributed to their asset allocations. If you’ve got a well-diversified portfolio that includes multiple asset classes, it could be useful to compare its overall performance to relevant benchmarks. If you find that your investments are performing in line with those benchmarks, that realization might help you feel better about your overall strategy.
4. Tell yourself that this too shall pass
The financial markets are historically cyclical. Even if you’re considering changes, a volatile market can be an inopportune time to turn your portfolio inside out. A well-thought-out asset allocation is still the basis of good investment planning.
5. Be willing to learn from your mistakes
Anyone can look good during bull markets; smart investors are produced by the inevitable rough patches. If an earlier choice now seems rash, sometimes the best strategy is to take a tax loss, learn from the experience, and apply the lesson to future decisions. Expert help can prepare you and your portfolio to both weather and take advantage of the market’s ups and downs.
6. Consider playing defense
During volatile periods in the stock market, many investors reexamine their allocation to such defensive sectors as consumer staples or utilities.
7. Stay on course by continuing to save
Even if the value of your holdings fluctuates, regularly adding to an account designed for a long-term goal may cushion the emotional impact of market swings. If losses are offset even in part by new savings, your bottom-line number might not be quite so discouraging.
8. Use cash to help manage your mind-set
Cash can be the financial equivalent of taking deep breaths to relax. It can enhance your ability to make thoughtful decisions instead of impulsive ones. Having a cash cushion coupled with a disciplined investing strategy can change your perspective on market volatility.
9. Remember your road map
Solid asset allocation is the basis of sound investing. One of the reasons a diversified portfolio is so important is that strong performance of some investments may help offset poor performance by others. Make sure your asset allocation is appropriate before making drastic changes.
10. Look in the rear-view mirror
If you’re investing long term, sometimes it helps to take a look back and see how far you’ve come. If your portfolio is down this year, it can be easy to forget any progress you may already have made over the years. With stocks, it’s important to remember that having an investing strategy is only half the battle; the other half is being able to stick to it.
11. Take it easy
If you feel you need to make changes in your portfolio, there are ways to do so short of a total makeover. You could test the waters by redirecting a small percentage of one asset class to another. You could put any new money into investments you feel are well-positioned for the future, but leave the rest as is. You could set a stop-loss order to prevent an investment from falling below a certain level, or have an informal threshold below which you will not allow an investment to fall before selling. Taking gradual steps is one way to spread your risk over time, as well as over a variety of asset classes.
This article was written by Broadridge, an independent third party, and provided to you by Hall Sumner, Vice President, Investments at TLS Wealth Management of Raymond James. Hall Sumner is a Financial Advisor with Raymond James & Associates, Inc., Member New York Stock Exchange/SIPC located at 2015 Boundary Street, Suite 220, Beaufort SC 29902. He can be contacted at 843-379-6100 or email@example.com or visit our website at: www.tlswealthmanagement.com.
This information was developed by Broadridge, an independent third party. It is general in nature, is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Investments and strategies mentioned may not be suitable for all investors. Past performance may not be indicative of future results. Raymond James & Associates, Inc. member New York Stock Exchange/SIPC does not provide advice on tax, legal or mortgage issues. These matters should be discussed with an appropriate professional.