Investing in equities for the long term.
Tips for staying the course.
Sometimes investing in the stock market is like riding a roller coaster. Despite market ups and downs, there are several common strategies you can use to help weather volatility and 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 before an upturn, and then being on the sidelines when the market rallies. Sometimes, even missing a few days can make a huge financial difference.
Know the risk factors.
Even when you stay in the market long term, there is clearly risk involved with investing your money in equity investments.
Knowing your goals and risk tolerance will help you to choose investments that are right for you, so you’ll be comfortable riding out any market volatility.
There are different types of risk, ranging from capital risk, when you risk losing what you’ve invested, to legislative risk, when 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 carry 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 fit your comfort level. It is also important to know if 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 accomplish 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 of stock is doing well, while limiting the potential for harm when one type of stock performs poorly. If you invest in more volatile investments, such as small capitalization companies, 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 means you systematically invest a fixed amount of money at regular time intervals. The objective of dollar-cost averaging is to reduce the average price you pay for the securities, since you will buy more securities when the price is low, fewer when the price is high. A plan of investing does not ensure a profit or protect your investment from market declines. You have to consider your financial ability to purchase securities regularly during periods in which the value of securities is declining.
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 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 against unforeseen events through proper insurance planning 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.