Declines in markets are normal when it comes to investing. In fact, you may have experienced them yourself in recent months, with a lot of markets fluctuating. While it is very tempting to make your move when markets are weak and you read nothing but doom and gloom in the newspapers, you have to make an effort to resist the temptation. Why? It’s because your best decisions regarding investments should be based on savings you are getting and the investment plan you have in place. While it is important that you stay abreast of what’s happening in investment markets, you should always understand headlines within contexts. Your emotions have no place in investing because they may lead you astray, making you buy high and sell low. This will give you a below-average performance in your portfolio and that just won’t do.
While the volatility of the stock market can test your patience, you need to dole out lots of it if you’re interested in building a long-term investment. Here are some strategies to help you stick with your investment plan even when market conditions are difficult:
- Staying invested. If investment values are declining for you in recent weeks, it is natural to be alerted and want to take some action. But before you do anything, take the time to take into consideration what selling long-term investments will result in, taking particular note of the downside such an action will bring you. Selling finalizes a loss for you because you lose out on any chance to gain back whatever you’ve lost, while staying put gives you the chance to get your money back. A lot of investors get their timing wrong when buying or selling so they end up losing money or missing out on important gains. It’s like doing something when you’re angry—most of the time you’ll regret what you’ve done.
- Rebalancing to maintain targeted asset mix. If the declines you are experiencing persist, you may have to rebalance your portfolio in order to ensure that you are investing according to the investment strategy you are using. For instance, if equity fund values decrease by 20% each year and fixed income investments increase by 10%, your portfolio will need rebalancing, pushing you to increase equity investments while decreasing fixed income investments to achieve targeted asset mix. Don’t forget to review asset mix strategies over time as well so you can introduce changes when necessary to achieve your goals.
- Making regular investments. In uncertain markets, one of the best ways of dealing with risks associated with short-term investments is to make small contributions regularly. Whenever you invest in funds regularly, unit prices tend to go up and down so you generally pay whatever lies in the middle. Should your investment gain value over time, you will profit from making investments when short-term prices are on the decline.
It’s going to be difficult to stick to an investment plan when you think you are doing so blindly. This is why it is important that you understand exactly what you will get out of sticking with your investment plan. While there is never a 100% guarantee of what an investment plan could bring, you should also give your investment plan enough time to work for you in order to really tell what it is capable of. But while sticking to an investment plan is important, you should also know when to incorporate necessary changes to shield you from big losses. Regularly reviewing your investment plan and knowing what sorts of options are available to you will help you come up with necessary changes when needed to ensure that your goals are always realized.