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How to keep your sanity in a turbulent market

The current market conditions can certainly make us all a little nervous about investing and perhaps lead us all to question our strategy.  Following a few basic tips can be helpful in these turbulent times.
What is the first step in surviving a turbulent market?
Recognizing that market downtowns are a normal cycle of investing. And secondly, just because the market is down, it doesn’t necessarily mean your portfolio is also struggling.
Why do most experts give the advice to not panic or over-react?
When the market tumbles drastically, our first reaction is to sell right away.  That might not be the best strategy for your situation.  The right choice depends on several factors.
What are some of the factors to consider?
First and foremost is the time horizon you have for your investments.  If it is for retirement and you are in your 30s, that’s a different decision than if the investments are in a 529 Plan and your child starts school in August.  Another consideration is where would you move the funds if you did divest from the market.
What types of strategies can help us avoid panic mode with our investments?
The most important is having the proper diversification in your portfolio to meet your investment objectives while at the same time reducing as much market risk as possible.  This coupled with a longer term view beyond just the daily stock market price can really alleviate many fears. Planning for the worst is always the best way to be prepared and lessen the impact of market downswings.
Why is dollar cost averaging an effective approach to investing?
If you are investing in a mutual, the number of shares you purchase each time you make an investment is determined by the share price.  When the price is high, you buy less, when the price is low, you can purchase more shares which means your average cost per share is less.
What is the best method to take advantage of dollar cost averaging?
It is really simple, commit to investing the same amount on a regular basis through the use of ACH or another automated method, preferably monthly.  It is that easy to use this simple, yet very effective approach.
What is one personal trait that every investor needs to know about themselves?
The most important trait is knowing your risk tolerance. If you will be reviewing your investments on a daily basis and be worried with minor downward movements in price, then you will want to find the least volatile investment option, if you are an invest it and forget it, you might be more comfortable with investments that have more pronounced up and down swings in value.
What is the most important advice for those already invested in the market?
If you make changes to your investment portfolio, only do it after careful consideration and research.  Don’t take advice from the person down the street, their situation might not be the same as yours.

Posted: 2/25/2016 with 0 comments

Categories: Investments, Money Matters, Saving

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