Money Smarts Blog
How to Cope with Market Volatility
Mar 17, 2016 ||
Recent market swings, brought on by falling oil prices, China’s slowing economy, and political uncertainty have many investors concerned about their retirement savings. Market volatility plays a big role in the performance of investments over time. Consider taking these six steps to minimize its impact on your investments.
Know your long-term goal. It’s important to develop a long-term, disciplined plan for saving and investing so you can draw from your savings throughout retirement. Think of it as being able to pay yourself each month when regular income from your employer stops.
Stick to your plan. Nobody can predict when the market will have its best days, so it’s vital to stay the course regardless of market shifts. Steadily investing the same amount on a regular basis lets you take advantage of dollar-cost averaging, avoid the temptation of timing the market and takes the emotion out of investing.
Consider asset allocation. Asset allocation can be an important investment strategy. Dividing your contributions among stocks, bonds, real estate and cash allows you to balance the risk of your investment if one investment class is performing poorly. The right asset allocation for you depends on a few key things: your comfort level with risk and how much time you have until retirement.
Diversify. Diversification takes asset allocation a step further by spreading your money into different options within each asset class. This spreads the risk so investment balances may be less affected by short-term market swings.
Rebalance regularly. Rebalancing should be a part of your action plan. Over time your asset allocation can change as some investments grow more than others. Rebalancing returns your investments to the original allocation, keeping it consistent with your long-term goals.
Monitor your investments. Once you choose the mix of investments that works with your goals, it’s important to review it periodically. Life is full of unexpected changes that can affect your tolerance for risk or the time horizon for your plan.
A financial professional can review your investments and help make changes to you plan on an ongoing basis, and incorporating these six steps will help you stay on course. Let us know if we can help you meet your long-term investing goals.
Article by Bob Blaze, CFP®, Financial Advisor Bob has been helping clients with financial planning for more than 20 years, and a CFP® professional for nearly ten. He currently specializes in personalizing wealth accumulation strategies, Individual Retirement Accounts (IRAs) and retirement plan rollovers.
Source: “Coping with Market Volatility.” Principal Fund Distributors. August, 2015.
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