So following up on our last post, today I want to talk to you about staying the course when the market turns against you. I know it can be scary and confusing when the market takes a downturn, but I'm here to help you navigate through it. Let's Jump right in!
1st let's talk about asset allocation
I know it sounds like a fancy term, but it's really just about spreading your bets among different types of investments with varying degrees of risk. The idea is to build a portfolio that matches your risk tolerance. So, when the market turns down, you can trust that your portfolio is built to withstand it. Now, I know it's tempting to panic and sell everything when the market drops. But trust me, that's not the best strategy. Timing the market is nearly impossible, even for the experts.
We all know Warren Buffett, who is known to be one of the greatest investors of all time, and he advises against it. Instead, focus on the long term and stay the course. History has shown that the market has always recovered.
- Let me give you an example. During the 2008 financial crisis, many people panicked and sold their investments. But those who stayed with and trusted the asset allocation model they’d built and rode out the storm saw their portfolios recover and even grow over time. The same goes for the recent pandemic-induced market downturn. It may have felt like the end of the world, but the market has bounced back nicely.
Of course, it's important to consider your own risk tolerance. If you can't stomach the volatility of the market, it's okay to adjust your portfolio and take a more conservative approach. But remember, being too conservative can also limit your potential for growth. It's all about finding the right balance for you.
2nd let's talk about what you can do when the market drops
One strategy is to buy low. Yes, it sounds counterintuitive, but it's all about taking advantage of the market's ups and downs. When the market is down, you can buy assets that have decreased in value. This is where rebalancing your portfolio comes in handy. By selling some of your winners and buying assets at a lower price, you can potentially benefit from the market's recovery.
But here's the thing, don't let the news influence your decisions. The media loves to sell fear and often exaggerates the impact of market downturns. Stick to your plan, trust your portfolio, and don't let short-term fluctuations derail your long-term goals.
- Remember, time in the market is key. The longer you stay invested, the more opportunity you have for growth.
- If you're unsure about your risk tolerance or need guidance on your investment strategy, don't hesitate to reach out to a financial advisor. They can help you assess your goals and build a portfolio that aligns with your needs.
Warren Buffett himself has emphasized the importance of time in the market. So, focus on building a solid investment strategy and have the patience to let it play out.
To recap, when the market turns against you don’t panic and remember these tips.
- Have a plan
- Stay invested
- Buy low and rebalance
- Don’t let the news influence you
- Have patience
I hope this advice helps you navigate through the ups and downs of the market. Remember, investing is a journey, and I'm here to help you every step of the way.
Until next time,
Jim Bishopp
Disclosure
Investing involves risk including the loss of principal.
Asset allocation does not ensure a profit or protect against a loss.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.