by John Dunkel, CFP®, MBA, Vice President – Financial Consultant, Charles Schwab & Co.
The stock market has entered a more volatile period of time, and more frequent ups and downs in the market impact not only your portfolio, but also your emotions as you try to ensure you have enough savings to make it to and through retirement.
According to Pew Research Center, 10,000 baby boomers are turning 65 every single day. Navigating through rocky markets can be tough, but following practiced and tested investing principles might help you stay the course.
1. Diversify your portfolio
Portfolios that are highly concentrated in just a few securities can be very risky. Having money spread across different asset classes (or types of investments such as stocks, bonds and cash investments) is important because each can respond to the market differently. It’s not always the case, but when one is up, the other can be down. Deciding on the right mix can help cushion the blow during volatile markets. Here are a few quick questions to ask yourself:
- Does your portfolio’s success depend too heavily on the performance of any single investment?
- Are your holdings especially concentrated on a single industry, sector or country?
- Are you less diversified than you think because different funds in your portfolio hold many of the same securities?
2. Determine your risk profile
Investing involves taking risks, and you have to be honest about how much risk you’re willing to take with your money. Determining your risk tolerance informs how you should diversify your investment portfolio between stocks, bonds and cash investments. Higher potential rewards generally come with higher risks. Start with some simple questions:
- Do you need your portfolio to generate income now or in the near future?
- Can you tolerate fluctuations in the value of your investments, financially and emotionally?
3. Take the long view
In times of dramatic market volatility, each fluctuation may seem disastrous. However, emotional reactions to short-term market conditions can put you at risk for further financial loss. Markets typically go up and down, and even bear markets historically have been relatively short. According to the Schwab Center for Financial Research, the average bear market has lasted only about 17 months; the longest bear market was a little less than three years (915 days), and it was followed by a nearly five-year bull run.
Timing the market’s ups and downs is nearly impossible – instead, focus on staying diversified, know your risk tolerance and stick to your plan during tough times. For long-term investors, which are most of us, the strategy should be time in the market rather than timing the market.
The certainty about investments and markets is that they change. So remember to use periods of market volatility to make sure your investments are diversified and take your risk tolerance into account. And if you don’t have a financial plan, now is a good time to create one.
John Dunkel, CFP®, is a Financial Consultant at Charles Schwab with more than seven years of experience helping clients achieve their financial goals and more than two decades in the financial services industry. Some content provided here has been compiled from previously published articles authored by various parties at Schwab. This is a paid advertorial.
Investing involves risk including loss of principal. Diversification strategies do not ensure a profit and do not protect against losses in declining markets.
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of securities and investment strategies mentioned may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
©2018 Charles Schwab & Co., Inc. (“Schwab”). All rights reserved. Member SIPC.