The market volatility is testing all investors. At the same time, we are being bombarded with conflicting advice from the news media about what we should to protect our assets. Here are three tips to help calm your market worries.
1. Don’t Get Distracted by News Reports
The news media is reporting the crisis of the moment, and they are reporting historical data. They rarely talk about the positive and the long term future.
Instead of following the day-to-day news, focus on your long term plan. Your plan should include goals and reflect your risk tolerance. You should also maintain at least one year of living expenses in cash reserves either in money markets, CDs and short term bonds. If you don’t have a plan, make one. Start saving your cash, reduce your expenses and work a little longer if you were thinking of retiring. In the meantime, turn off the news and reduce your stress level.
2. Prepare for the Unexpected by Diversifying
Now is the perfect time to look at your portfolio and diversify. Ask yourself if your portfolio is balanced. For example, do you have too much in tech stocks? Do you have at least a year or two in cash or CDs that are not at risk? Are you invested in diversified mutual funds that spread the risk across different categories? Monitor your portfolio and make sure your assets are allocated properly and are in-tune with your plan.
3.Focus on the Long Term
Despite the losses we’ve been experiencing, most people should be holding onto their portfolios and not selling. Why? History shows that the market will rebound and if you are not in the market you will not be able to make up your losses. Over a 12 month rolling average, the S&P 500 Index’s best return is up 61% and the worst is down 31%. But if you look at the market’s best and worst average annual return over a 20-year period the best return is a gain of 18% and worst return is also a gain of 8%. This shows that time wins out over volatility. (Remember however that it is impossible to predict the future. Past performance does not guarantee future results.)
Of course, everyone’s circumstances and plan are different. If you are approaching retirement, you will have different needs and a different plan than someone who is in his mid-thirties and still employed. If you’ve lost your job, you may have to adjust your plan to reflect your current employment status and your ability to get another job quickly. The point is that a long-term plan gives you flexibility and time to make these adjustments rather than panic and act in haste based on the news of the day. Consult your financial advisor or get a second opinion if you feel you need professional help creating and managing your financial plan.
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