It’s hard to see your investments rise in value one day and decline rapidly the next. It’s even harder to see them go down day after day. No strategy can guarantee positive returns. Still, it’s worth remembering these long-term fundamental principles of investing, especially in difficult market environments.
Invest regularly – in good and bad times
- Having 401(k) contributions deducted from your paycheck (if your plan allows for this) or putting a set amount in your IRA each month is a good idea. Although this strategy doesn’t guarantee a profit or protects against loss, it’s one way to take advantage of a down market because you’ll have the opportunity to buy shares while prices are relatively low.
- Instead of fearing a down market, view it as an opportunity to invest in good companies at potentially lower prices through your mutual fund
Avoid jumping in and out of the market
- Successful market timing is very difficult because it requires getting out at the right time and getting back in at the right time.
- Maintain a diversified portfolio.
- By investing in a mix of mutual funds that invest in stocks, bonds and cash-equivalents, you may lower your risk because you’re not overexposed to any one type of investment.
Consider allocating a portion of your investments in an international or global fund
- Markets outside the U.S. often move in their own cycles.
- If your retirement plan offers them, consider investing in a target date fund, which can serve as a single diversified investment. Target date funds attempt to balance investor’s needs for both returns and lower volatility by moving from a higher percentage of growth funds to a higher percentage of income-oriented funds over time.
- Diversification doesn’t guarantee a profit, but over time it can help reduce the effects of volatility.
Don’t forget history
- In the worst of times, it’s easy to forget that market declines have been a natural part of the economic cycle.
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