If you were to only consider daily stock market performance, you would likely think that the economy is quite volatile. By contrast, when the stock market is evaluated from a broad perspective, it more clearly shows steady growth over time. There is no one size fits all approach to completely eradicating market risk, but there are several different tactics that you can implement to mitigate it to keep your investments secure during times of greater market volatility.
Invest for Your Goals
The financial goals that you make will lead you to the right strategies for investing. The first thing that will determine what kind of assets you should invest in is the time horizon, or how much time you have until you need to access the funds. The closer you are to a goal, the less risk you will want in your investments. For example, if you want to save up for a vacation that you are planning to take two years from now, you would not want to put this money fully into the stock market, as you could end up losing money between now and then due to its volatile nature. You would want to invest in more conservative holdings that might have a lower rate of return but more guarantee to appreciate in value. This allocation of assets is a strong tool in handling market risk.
Dollar Cost Averaging
This strategy is for long term investing. The idea behind dollar cost averaging is to spread out security purchases over a fixed time period as opposed to investing a large lump sum of money at one time. The reason that this is a popular strategy is that a single investment could potentially occur during a high rising period in the market, which essentially makes you buy at a high price. By investing multiple times, such as once every two weeks, you are contributing consistently through the ups and downs of the market, bringing the overall purchase price to a lower average.
Monitor and Adjust
It is important to check in on your investment portfolio periodically, such as quarterly or annually, to make sure your assets are allocated in the correct proportions. One act of monitoring is to re-balance investments. This is needed when certain investments end up with a higher or lower return in relation to others in your portfolio and create an imbalance. Another way to monitor is to adjust allocation based on changing goals. Life happens, and you may end up with a different time horizon for certain goals or you may not have a desire to pursue certain ones anymore. Lastly, do not get too caught up in checking your portfolio too often. Monitoring should be done sparingly just to make sure you are still heading in the right direction. Stay the course and trust that your investments will grow over time.
Trying to keep up with the stock market requires time and careful consideration. If you have questions about how you can mitigate the risk of the market for your investments, feel free to call us at 513-241-8313 or click here to contact ta member of the Barnes Dennig Wealth Management team. We look forward to discussing your concerns.