Investing in equities for the long term
Tips for staying the course
Sometimes investing in the stock market can be like riding the roller coaster at an amusement park. In fact, the stock market averaged one down year out of every four years. In other words, roughly every five years, there was a 20% market correction , ,a broad-based downturn in the value of stocks1,2.
As an investor, what can you do to weather the volatile market and help keep your investments afloat?
Focus on the Long Term
Most experts will tell you that if you are investing for the long run — for retirement, for instance, or for a specific financial goal — it's better to let your money go along for the roller coaster ride.
If you try to anticipate the market's ups and downs, you run the risk of selling, and then being on the sidelines when the market rallies. Sometimes, even missing a few days can make a huge financial difference.
The Risk Factor
Even by staying in the market long-term, there is clearly risk involved with investing your money in equity investments.
Knowing what your goals are and what your risk tolerance is can help you choose investments that are right for you and that will make you comfortable enough to ride out any market volatility.
There are different types of risk, ranging from capital risk, where you risk losing what you’ve invested, to legislative risk, where changes in tax laws may make certain investments less advantageous. And the various types of investment products have different types and levels of risk associated with them. And it is important to keep in mind that higher returns usually come with higher levels of risk.
Bottom line: before investing, it's important to understand the risks involved with the products you're considering and determine if they best fit your level of comfort with risk. It is also important to remember that your investment choices are in line with your investment objectives and time horizon.
Diversify, Diversify, Diversify
"Diversification" means investing in a variety of investments with different return characteristics.
. You can do this by spreading your investment money across several asset types, or by diversifying within a specific asset category.
For example, by investing in various types of stocks, you reap the benefits when one or more type is doing well, while limiting the potential for harm when one type does poorly. If you invest in more volatile investments such as small capitalization companies, for instance, you should also invest in investments that are generally considered to be more stable such as large capitalization companies that can balance them out.
Investing in products that are managed by professional money managers may be a good idea, too, because diversification is often already built in. Depending on the product, money may be invested in a wide range of equity investments. You simply choose a product that is suitable for you and meets your risk comfort level.
Dollar Cost Averaging
Dollar Cost Averaging means you systematically invest a fixed amount of money at regular time intervals.
You don't try to time the market; rather, you invest at regular intervals and hope that by doing so, you'll even out the effects of market volatility.
Dollar-cost averaging does not assure a profit nor does it protect against loss in declining markets. To be effective, there must be a continuous investment regardless of price fluctuations. Investors should consider their financial ability to continue to make purchases through periods of low price levels.
Protect While You Invest
While investing in the market can be a financially rewarding experience, the importance of protecting yourself and your family for the unforeseen cannot be overemphasized.
As investment markets rise and fall, life insurance and fixed annuity products can provide enduring protection for a family and a future.
For informational purposes only. There is no guarantee any strategy will be successful. Diversification does not assure a profit or protect against market loss.