Where will the markets head next?
Who really knows! But history tells us that eventually they will head upward …
Or maybe downward?
How will you react when the bulls get going?
How will you react if the bears keep on going on?
Here’s some advice on how to survive when you start to hear the bears or the bulls!
Selling after the markets tumble is the worst thing. Try to stay calm. Remember, bear markets are a natural part of the investing cycle. Focus on the long term.
Don’t Try to Time the Markets:
No one can tell when a peak or bottom will occur.
Timing the markets successfully means you have to guess right twice – at the high and the low!
Because the markets have tended to rise over the long term, any time you are out of them you risk missing out on a market rise.
Don’t Fixate on Day-to-Day Movements:
Watching the markets rise and fall seems to have become an international pastime. There’s more to life than that. And it can be bad for your health …
Your financial health!
Watching the markets constantly is like weighing yourself every day when you’re trying to lose weight. Instead of continuously monitoring your investments, examine your portfolio’s return every three or six months.
And consider reallocating your assets once a year, to stay true to your risk tolerance and investment goals.
Don’t Become Overly Concentrated:
You may be drawn to a hot stock, sector or fund, but remember the value of a diversified investment approach. Use an asset allocation plan and stick to it.
Buy and Hold:
Only buy stocks or invest in equity mutual funds for goals that are five years away or longer.
Use Asset Allocation:
Consider your investment goals, risk tolerance and time frame. The longer the time and the greater your risk tolerance, the more aggressive you can be.
And remember the value of diversifying across asset classes (bonds, cash and stocks), industries, sectors, styles (value vs. growth), size of companies (small/medium/large), and geography (foreign stocks).
Another form of risk management that is particularly helpful during a market decline is cost averaging. Investing a steady amount every month will allow you to buy more shares when the price falls and fewer when the price rises.
You may come to appreciate market corrections, or even bear markets, as buying opportunities. The key is to have a long-term horizon and lots and lots of patience.
Review Your Portfolio:
Calmly, thoughtfully review your financial needs. If you know you will need your money in less than a year, it might make sense to sell your investments.
There is no rule about how long a bear or a bull market will last. Patient investors will be rewarded when the cyclical nature of the financial markets are bound to head upward or downward again.
Finally, remember two more things:
A. Risk and rewards go together and
B. Investments always follow cycles!