No matter what the current market brings, there are always opportunities in the financial markets. The key is to understand how to react and what your mindset should be when there is significant market uncertainty.
Review your Financial Plan
An optimal financial plan takes into consideration a lot more than asset allocation. Elements such as cash management, protection management and retirement planning are also key pieces to a holistic plan. Overlooking any of these elements can put your dreams and goals at risk. Now is the time to meet with your advisor to find out how market volatility is affecting your plan and to determine if you need to make adjustments.
Don’t let Emotions Control your Financial Future
Up and down market movement is a fact of life. Don’t let your emotions drive your decisions. Stay focused on your long-term investment objectives to help ensure your plans stay on track.
Remain disciplined regardless of the market
Disciplined investment strategies such as dollar-cost averaging can help smooth out fluctuations. Dollar-cost averaging is the practice of investing fixed amounts in equities at set periods of time. Over time, your average price per share will usually be reduced.
Avoid Market Timing
It can be tempting to react to market volatility by trying to time the market. But effectively timing the market requires you to make two correct decisions that are very difficult to make: exactly when to buy and exactly when to sell. This is a risky game to play. Being out of the market at the wrong time —even if it’s for a short period or buying or selling at the wrong time, can significantly cost you.
Diversification is Important
Diversified investing across stock, bond, real estate, cash and other investments can help smooth out inherent ups and downs in the market. Your financial advisor can help you determine the appropriate investment mix depending on your goals, risk tolerance and time horizon.
© Nancy Butler, August 2011