From fluctuating gas prices to market volatility to inflation fears, it may be tough to tune out the noise when trying to gauge how your investments perform. And if you are like most investors, you try to resist the temptation to do something—anything—to help stem your losses when the market is gyrating.
During these times, it may be wise to remind yourself of these four common sense rules for investing—time-tested strategies that may help keep you calm and stay the course no matter what the market has in store.
Long-term Broad Market Trends
Historically, stocks tend to go up over time. While a particular investment may be having a bad month, quarter, or year, broad market indices like the S&P 500, the Dow Jones, and the NASDAQ have generally trended positive in the past. The S&P 500 posted positive returns for investors over most 20-year historical periods.1 Past performance is no guarantee of future results.
During market swings, try to remember that maybe "this too shall pass" and staying the course is one strategy to consider for long-term investing.
Individual Stock Picking is Tricky
Except maybe for Warren Buffet and Charlie Munger of Berkshire Hathaway, few have the luck or knowledge to beat the market by investing in just a few hand-selected stocks instead of a broader market index. While a stock you are considering might be the next Apple or Amazon, it is equally possible that it could be a loser like Blockbuster or Circuit City.
That’s not to say that owning individual stocks is a strategy that should never be considered and there may be situations where it works for some investors, but you could also consider the option of confining these picks to a small percentage of your portfolio. Using this strategy, you could potentially take advantage of broader market trends while still enjoying the thrill of choosing a specific set of stocks.
All Investments Involve Some Risk
The risk of analysis paralysis is a real one. Investing in anything beyond a Federal Deposit Insurance Corp. (FDIC) insured bank account involves some risk—and if you spend too long mulling over how much risk is too much, you run the very real risk of missing out on investment gains as your funds sit idle on the sidelines.
Neither you nor any financial professional you may be working with control everything, including your investments. It may feel less like you are at the mercy of the market’s every whim if you remind yourself of what you can control—how much you invest, what you invest in, and how often you check your portfolio's value.
An Appropriate Asset Allocation May Do the Job for You
One of the keys to staying calm during market chaos is ensuring your asset allocation is tailored to your risk tolerance, investment horizon, future financial needs, and the tax treatment of the investments.
For example, say you began investing—with more than 30 years until retirement—and were able to invest aggressively in assets that were likely to provide the highest rate of return over a long-term horizon. As retirement draws closer, you would likely need to focus on reallocating some of your investments into lower-risk securities to hopefully have the liquidity you need when you no longer receive a regular paycheck.
You might also mitigate some stress from managing your investment accounts by regularly reviewing and adjusting your asset allocation. And if it makes sense, common or otherwise, consider meeting with a financial professional to discuss strategies that are appropriate for you and your investment goals.