Fluctuations in the market may have you wondering if you should continue to leave your hard-earned money in the stock market or move into more conservative investments. A better way to protect yourself from the unpredictability of the market is to have a sound investment portfolio based on your individual goals, time frame and tolerance for risk. Here are some "market-taming" strategies that can help you resist short-term reactions to market conditions - in either direction.
Study after study shows that market timing - shifting money in and out
of the investment markets in an effort to capitalize on rising prices and avoid
the downturns - is a very tough thing to do. A 2016 publication by Morningstar
illustrated the risk of missing the best days in the market from 1996 to 2015.
An average investor who stayed in the market for all 5,040 trading days
achieved an 8.2 percent gain. If the investor missed the best 10 days, their
return dropped to 4.5 percent. If they missed the 50 best days, they lost 3.7
Asset allocation is an investment method designed to help ensure that you have the right mix of debt and equity investments. Diversification strives to neutralize – the negative performance of some investments is neutralized by positive performance of others. Using an asset allocation methodology and diversification do not guarantee greater returns or against the risk of loss in a declining market. What's best for you will depend on your particular situation, risk tolerance and time horizon.
Dollar-cost averaging is a method of accumulating shares with a fixed dollar amount on a regular basis, while essentially ignoring market movements. When the market and prices fall, you accumulate more shares with that fixed dollar amount. When the market and prices go up, fewer shares are purchased. You stay focused on accumulating. Investors should consider their ability to continue purchases through periods of low price levels or changing economic conditions. Such a plan does not protect against losses in a declining market; but in general, it will make your cost per share lower over time.
The KGE Wealth Management team can help evaluate your situation and make sound investment decisions going forward.
Investing in securities involves risks. Investments seeking a higher degree of return also involve a higher degree of risk. Investment will fluctuate with the prevailing market conditions and may be worth more or less than original cost upon liquidation.
Written by Securities America for distribution by Keith Ellen at KGE Wealth Management.
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