When you log into your investment account, the last thing you want to see is that your account has experienced a dramatic drop in its value. However, this is a sight practically guaranteed to greet every investor at some point. Check out a few things you can do to hedge the value of your portfolio against market volatility.
1. Keep Your Cool
Remember, you do not incur losses until you sell the investments that have experienced a loss. Resist the urge to sell stocks or funds in an attempt to preserve their value. Trying to time the market nearly always results in greater losses for the average investor.
Keep your wits and remember that you are investing for the long haul. Short-term market fluctuations are normal and to be expected. You should be more concerned about the long-term performance of your investment account.
2. Make Sure Your Investments are Appropriate for Goals, Investment Horizon, and Desired Level of Risk
One important task you should do every year is to make sure that your investment holdings are appropriate for your goals. For example, if you are investing in a retirement account that you don't plan to touch for 30 years, it makes sense to hold riskier stocks and fewer bonds in hopes of achieving a higher return.
However, if you need the money in your investment account in the next five years or so, it might be a wise decision to put some of your money into less risky funds, such as dividend-paying stocks or bonds. Consult with your financial adviser to make sure the funds you are holding are suitable for your needs.
If you are adverse to risk, tell your adviser. Your adviser can suggest alternative products, such as a variable annuity, that can help you preserve a certain level of principal.
3. See That Your Investments are Properly Diversified
In addition to making the right type of investments for your goals, you want to make sure that there is some type of diversification within your portfolio. This helps you reduce your overall level of risk. If one type of stock does poorly, the goal is for another type of stock that you hold to do well so that the value of your portfolio ultimately continues to grow/
For example, many financial planners advise their clients to hold a mix of domestic and international funds. By holding different types of funds, you give yourself some protection against drops in value that some of your stocks might experience. You might also choose to hold stock from a mix of companies, such as small businesses and large corporations.
For more information, contact your local wealth management service.
Share26 February 2018
I still remember the day that my wife and I bought our first home. We were excited about filling the place with new furniture and looking for great area rugs. Unfortunately, before we knew it, we found ourselves deeply in debt. It was difficult to dig our way out, but over the course of the next several years, we were able to make things right. I want to teach other people how to manage finances so that they can avoid the turmoil that we went through. Financial planning might seem impossible, but with a little practice, I know it can become second-nature.