Tag Archives: Asset Allocation

Timeless Investing Lessons

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“It is near impossible to consistently outperform the market, which supports passive investing in lieu of active management strategies.” ~ Burton G. Malkiel

  1. Buy and hold investments for the long-term. Investment expenses and taxes will eat away at your returns. It’s impossible to perfectly time the market. You will make mistakes. Buying total market index fund will include buying nonprofitable companis in the mix. And, historical analysis shows:
    • When markets are high is when most people put money into the market.
    • When markets are low is when most people take money out of the market.
  2. Timing the market doesn’t work. Timing the market means selling assets at the top of the market and buying the asset at the bottom of the market. Successfully trying to time the stock market has never earned. Thus, you should not try to time the market.
  3. Dollar cost averaging. DCA means putting money into the market regularly overtime.
  4. Broad Diversification. You do not want all your personal capital and savings invested in a single stock or a single asset class, such as stocks only. You should diversify your investment across different asset classes (stocks and bonds), industries and countries. You want to own both domestic and foreign stocks, bonds, real estate and some cash.
  5. Cost matters. The two variable costs you can control are investment costs and taxes. Jack Bogle said, “you get what you don’t pay for.” Since, the lower the expense ratio the investor pays the purveyor of investment services, the more capital that is left over for the investor. Look carefully at the expense ratio.
  6. Index funds. Buy a total market index fund with zero or low expenses. Two-thirds of active investment managers are beaten by stock index funds annually. Ninety percent of active investment managers are beaten by stock index funds over a ten year period.
  7. Buy bond substitutes instead of total bond index fund such as preferred stocks or high yielding dividend paying established companies.
  8. Rebalance annually or at least bi-annually. This requires you to sale highly appreciated assets to buy assets that have not appreciated greatly or are on sale.

These are just a few timeless investing lessons that invest can follow to build wealth

References:

  1. https://www.wallstreetprep.com/knowledge/random-walk-theory/

Index Fund Investing

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Successful investing always starts with a goal!

Source: Napkin Finance

Investing is for everyone and it can help you reach your financial goals. And, you don’t have to try to pick the winners in the stock market to achieve long-term investing success.

When investing, you don’t have to have tons of money, trade a lot, or employ sophisticated strategies. A proven strategy is just doing the “boring” thing of determining an appropriate asset mix (of stocks, bonds, cash and real estate), owning well-diversified, passively managed index funds, avoiding the herd following tendency to “buy high / sell low,” and sticking with that asset mix over time can help you reach your financial goals.

Even billionaire investor Warren Buffett, the chairman and CEO of Berkshire Hathaway, has repeatedly recommended index funds. Buffett said at a shareholders’ conference, “In my view, for most people, the best thing to do is to own the S&P 500 index fund,”

An index fund is a professionally managed collection of stocks, bonds, or other investments that tries to match the returns of a specific index. They tend to:

  • Pool money from a group of investors and then buy the individual stocks or other securities that make up a particular index. That model helps to reduce the associated costs that fund managers charge, compared to those funds where someone is actively strategizing which investments to include.
  • Track the performance of a particular market benchmark, like the S&P 500 or the Dow Jones Industrial Average. They’re a form of passive investing, because they allow investors to buy a lot of assets at once and hold them for the long term.
  • Offer instant diversification for a portfolio, which helps reduce risk. They also tend to be low-cost investment options, which is a big reason why they’re popular with investors.

While individual stock prices can fluctuate wildly, the broader index tends to go up over time — and with index funds, you don’t have to pick the winning stocks to benefit from the market’s overall gains.

Although all index funds track an index, according to Napkin Finance, what they invest in can vary widely:

  • U.S. stocks—some index funds track a well-known U.S. index, like the S&P or the Dow.
  • Global stocks—some try to essentially track the entire global stock market.
  • A specific industry—some index funds focus only on tech or healthcare stocks or those of another industry.
  • A particular region or country—there are index funds that track only investments in Japan, South America, or other regions.
  • Bonds—some index funds try to track the whole bond market, while others focus on a specific slice.
  • Alternatives—there are index funds that track oil, gold, real estate, and more.

Putting your money to work

There are some inherent risks that come with investing in the stock market, but investing also offers a higher rate of return than the interest rates you’ll earn on a savings account. The S&P 500, an index representing the 500 largest U.S. companies, has delivered average annual returns of almost 10% going back 90-plus years.

You don’t have to be an expert or professional investor to be successful. Index funds are a low cost and easy way to beef up the diversification of your portfolio. Additionally, they are relatively low cost and you don’t need a lot of index funds to achieve diversification.

References:

  1. https://napkinfinance.com/napkin/index-fund/
  2. https://grow.acorns.com/warren-buffett-index-funds/
  3. https://rajn.co/warren-buffett-quotes-investing-business-stocks-risk-debt/
  4. https://grow.acorns.com/why-index-funds-are-often-the-best-way-to-invest/

Investing – How to Get Started

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“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”  Robert Kiyosaki, Rich Dad Poor Dad

Investing, which involves putting your money to work, is a great first step toward building wealth for yourself and your family. If you think investing is gambling, you’re doing it wrong. The world of investing requires discipline, planning and patience. And, the gains you see over decades can be exciting. The three most common categories of investments, referred to as asset classes, include:

  1. Stocks – which are a share in a company. These tend to be riskier investments, but also typically offer more potential for profit over time.
  2. Bonds – which are a share of debt issued by a business or the government. These are safer investments, typically returning a lower profit than stocks over time.
  3. Cash and cash equivalents – which are readily available cash and short-term investments like certificates of deposit (CDs). These are the safest investments, but typically return little profit over time.

 

Before you start investing, it is important for you to understand a few basic concepts and definitions, such as:

Risk Tolerance

Risk tolerance is basically your emotional ability to deal with losing money. If you invested $1,000 today, could you deal with it being worth $500 for a period of time? That’s possible if you invest heavily in stocks, which tend to increase in value over time but can be volatile from one day to the next. If you answered yes to being okay losing a great deal of money for a period of time, then you have a high risk tolerance.

Time Horizon

Time horizon is the amount of time before you want to use your money. If you’re planning to use the money to make a down payment on a home within the next three years, you have a short time horizon and would likely have less risk tolerance. If you’re not planning to use the money until you retire in 30 years, then you have a long time horizon and can afford to take on more risk.

Asset Allocation

Asset allocation is the percentage of stocks, bonds or cash you own. If you have a high risk tolerance and long time horizon, you’re likely to want a larger percentage of stocks because you’ll be able to weather ups and downs and make more money over the long term. On the other hand, if you have a low risk tolerance and short time horizon, you probably want more cash and bonds so that you don’t lose money right before you need it.

Stocks, bonds and cash tend to respond differently to market conditions (one may go up when the others go down). Asset allocation helps you spread your money so that when one asset class unexpectedly zigs, your whole portfolio doesn’t zig along with it. In this way, asset allocation can help ensure your portfolio is correctly positioned to help you reach your financial goals, no matter what is happening in the market.

Diversification

Diversification splits your investments among different groupings or sectors in order to reduce risk. That includes your asset allocation. But it also includes where you invest within asset classes. For instance, you might diversify between stocks in companies located within the United States and stocks in companies located in Asia.

Different sectors of the economy do better at different times. It’s tough to predict which one will do well in any given year. So when you diversify and own stocks across different sectors, you are positioned to make money on whatever sector is performing well at the time. A well-diversified portfolio can help lessen the impact of market ups and downs on your portfolio.

Rebalancing

If you’ve done a good job with asset allocation and diversifying, then the balance of your portfolio is likely going to get out of whack over time as one sector does better than another. For instance, let’s say you wanted 10 percent of your stocks to be companies in Asia. If companies in Asia have a great year, those companies may now make up 15 percent of your stocks. In that case you’ll want to sell some of those stocks and use that money to buy more stocks (or even bonds) in parts of your portfolio that didn’t do as well.

Rebalancing on a regular basis (once or twice a year, for example) can help ensure your portfolio remains aligned with your goals. And because it provides a disciplined approach to investing, portfolio rebalancing also may prevent you from buying or selling investments based on emotion.

Dollar Cost Averaging 

Dollar cost averaging (DCA) involves putting your investment plan on autopilot.  With DCA, you invest a set amount at set intervals (for example, $200 every month) in the market. By investing systematically, you’ll buy more shares of an investment when the market is lower, fewer when the market is higher, and some when the market is in between. Over time, this may help you to pay a lower average price for the total shares you purchase.

DCA takes the emotion out of investing, helping you to start on your investment plan sooner, rather than later. And once you begin, DCA can also help you remain focused on your goals, no matter what’s happening in the market. It helps make investing a habit.

Capital Gains

Capital gains is an increase in the value of an asset or investment over time. Capital gains is measured by the difference between the current value, or market value, of an asset or investment and its purchase price, or the value of the asset or investment at the time it was acquired {cost basis}.

Realized capital gains and losses occur when an asset is sold, which triggers a taxable event. Unrealized gains and losses, sometimes referred to as paper gains and losses, reflect an increase or decrease in an investment’s value but are not considered a capital gain that should be treated as a taxable event.

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Fiscal Fact: The average white household had $402,000 in unrealized capital gains in 2019, compared with $94,000 for Black households and $130,000 for Hispanic or Latino households. These disparities have generally widened over time.  Source:  Tax Policy Center https://www.taxpolicycenter.org/fiscal-fact/unrealized-capital-gains-ff-05102021

Capital gains are classified as either short-term or long-term. Short-term capital gains, defined as gains realized in securities held for one year or less, are taxed as ordinary income based on the individual’s tax filing status and adjusted gross income. Long-term capital gains, defined as gains realized in securities held for more than one year, are usually taxed at a lower rate than regular income.

“If you want to become really wealthy, you must have your money work for you. The amount you get paid for your personal effort is relatively small compared with the amount you can earn by having your money make money.” John D. Rockefeller

Before you start investing or putting your money to work for your, do your homework and research. Once you’ve made a decision, make sure to re-evaluate the assets in your portfolio on a regular basis. A good asset today may not necessarily be a good asset in the future.

And, don’t panic during the inevitable setbacks and don’t be fearful during the inevitable stock market corrections that all long-term investors face. If the reasoning behind the investment decision was sound when purchased, stick with the assets, and they should eventually recover and grow.

References:

  1. https://www.investopedia.com/financial-edge/0511/the-top-17-investing-quotes-of-all-time.aspx
  2. https://www.northwesternmutual.com/life-and-money/how-to-invest-a-beginners-guide/
  3. https://www.northwesternmutual.com/life-and-money/4-investment-terms-you-should-know/
  4. https://www.investopedia.com/terms/c/capitalgain.asp

Investing Rules of the Road

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“Invest for the long term, seek quality investments and manage risk through diversification.”

The market changes every day, but what you want for your future probably doesn’t. The same goes for your investment / financial mindset, strategy and goals.

Your investment / financial mindset, strategy and goals are as unique as the route you take to reach them. But regardless of your course, the following 10 investing “rules of the road”, according to financial-services firm Edward Jones, can help you get where you want to be.

1. Develop your long-term goals and strategy

Determine your long-term goals, investment time frame and comfort level with risk – before deciding on a strategy. The more you can outline and clearly define what you are trying to achieve, the more you can tailor your strategy.

It’s tempting to chase the market, but most successful investors make their money over time, not overnight. Long-term investing with an emphasis on quality and diversification is a proven and time tested course of action.

The best way to build and preserve your financial future is with a long-term approach to investing. That’s why you don’t follow investment fads. But “buy and hold” doesn’t mean “buy and ignore.” You should still review your portfolio at least once a year to make sure you’re on track for the long haul.

Before you put your money in the market, you need to have a clear plan of what you want to accomplish and how you are going to do it. This is where creating an investment plan comes in.

The best investment plan is one that is customized to your lifestyle, so it’s necessary to create an individualized strategy that will set you on the path to success.

  1. Evaluate your current financial standing to understand how much risk you can take.
  2. Determine your goals and how long it will take you to realistically achieve them.
  3. Figure out which types of investments and strategies are the best way to get you to where you want to be.

Having a clear investment plan will give you a ton of clarity as you begin investing. By creating a specific plan, you will be ready to make your retirement goals a reality when that day comes.

2. Understand the risk and your risk tolerance

As a rule, the higher the return potential, the more risk you’ll have to accept. To determine what makes sense for you, you will want to know:

  • What is your comfort level with risk? Understanding this can help you determine how you may react to market ups and downs over time.
  • How much risk are you able to take? The amount of time you have to invest plays an important role in determining how much risk you’re able to take.
  • How much risk do you need to take? Your financial advisor will want to determine the return, and therefore the risk, that may be necessary to reach your long-term goals.

3. Diversify for a solid foundation

Your portfolio’s foundation is your asset allocation, or how your investments are diversified among stocks, bonds, cash, international and other investments. Your mix should align with your goals and comfort with risk.

While diversification can’t protect you against a loss, it can help reduce your risk. If your money is invested in just one or a few investments, and one of them struggles, your entire financial strategy could be in trouble. So most financial advisors recommend building a portfolio that includes different types of investments that perform differently over time.

4. Stick with quality

Believe in long-term investing with an emphasis on quality and diversification. Of all the factors to consider when investing, quality is one of the most important factor. It’s also one of the most overlooked. Although it may be tempting to buy a popular investment, it may not fit with the rest of your portfolio, and it may be riskier than you expect. If it sounds too good to be true, it probably is.

5. Save and Invest for the long term

It’s tempting to chase the market, but despite stories of fortunes made on one or two trades, most successful individual investors make their money over time, not overnight. One of the biggest mistakes you can make is trying to “time” the markets.

Timing the market is difficult or simply impossible for even the most seasoned professional investors and smart money. Rather than waiting for the best time to invest, it can often be a better idea to just take the plunge into the market and get invested. Waiting for the best time will lead to a lot of missed opportunities.

6. Establish realistic expectations

You’ll need to determine the return you’re trying to achieve – which should be the return you need to reach your long-term goals. Then you can base your expectations on your asset allocation, the market environment and your investment time frame.

The average stock market total return (e.g. S&P 500 historical returns), from 1950 to 2020 was 8.9%.

7. Maintain your balance portfolio and asset mix

Your portfolio’s mix could drift from its initial objectives from time to time. You can rebalance to reduce areas where your investments are overweight or add to areas where they are underweight. By rebalancing on a regular basis, you can help ensure your portfolio remains aligned with your objectives and on track to reach your long-term goals.

8. Prepare for the unexpected

When things are going well, emergency savings can seem unimportant. But in addition to your regularly occurring expenses, like rent/mortgage and utility bills, you’ll often deal with unforeseen events and unexpected costs.

Unforeseen events can derail what you’re working so hard to achieve financially. By preparing for the unexpected and building a strategy to address it, you’ll be better positioned to handle the inevitable bumps along the way.

No one wants to think about car breakdowns or job loss. But as much as we’d like to avoid thinking about them, emergencies do happen. Building an emergency savings account that is dedicated to handling unexpected costs is important.

9. Focus on what you can control

You can’t control market fluctuations, the economy or the political environment. Instead, you should base your decisions on time-tested investment principles, which include:

  • Diversifying your portfolio
  • Owning quality investments
  • Maintaining a long-term perspective

Additionally, taking control of your spending habits and weighing them against your dreams for the future can determine how to align your spending goals. Perhaps you might decide that it’s more important for your family that you retire by a certain age, and you could drive one car for a longer time or cut back in other areas. That way, more money would be available to make that bigger dream a reality.

If you have “bad” debt from credit cards and high interest personal loans that will get you in trouble with interest payments, pay that off before you put money in the stock market. 

Don’t fall into the common money traps of trying to keep up with the Joneses: buying the latest phone, shiniest car, biggest house. These are money traps because they are things that will take all your money so you have nothing left to invest. Spending money wisely is one of the most important steps you can take to put yourself in the best possible financial situation before you begin investing.

10. Review your strategy regularly

The one constant you can expect is change. That’s why it’s so important that you review your strategy on a regular basis. You should still review your portfolio at least once a year to make sure you’re on track for the long haul.

Realizing your dreams starts with smart investing. By regularly reviewing your strategy and make the adjustments you need, you can have a clearer picture of where you stand and what you need to do to help reach your goals.

No matter what your path forward looks like, tailor your strategies – so you can see the road ahead and move forward with confidence.

References:

  1. https://www.edwardjones.com/us-en/market-news-insights/personal-finance/investing-strategies/investing-rules
  2. https://www.edwardjones.com/us-en/why-edward-jones/investing-approach/investment-philosophy
  3. https://www.ruleoneinvesting.com/blog/how-to-invest/get-started-investing-with-these-10-steps/

Asset Allocation

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Asset allocation is one of the most important factors in your success as a long-term investor according to many financial experts. It’s a hundred times more important than any stock pick and more important than knowing the next hot country to invest in… what option to buy… what the housing market is doing… or whether the economy is booming or busting.

Asset allocation is how you balance your wealth among stocks, bonds, cash, real estate, commodities, and precious metals in your portfolio. This mix is the most important factor in your retirement investing success.

Ignorance of this topic has ruined more investment and retirement portfolios than any other financial factor. Many investors have no clue on what a sensible asset allocation should be. So they end up taking huge risks by sticking big chunks of their portfolios into just one or two investment assets.

For example, people who had most of her wealth in real estate investments in 2008 experienced significant losses when the market busted in 2009. Or consider employees of big companies that put a huge portion of their net worth or retirement money into their company stock. Employees of big companies that went bankrupt, like Enron, WorldCom, Bear Stearns, and Lehman Brothers were totally wiped out. They believed in the companies they worked for, so they kept more than half of their retirement portfolios into company stock.

And it’s all because they didn’t know about proper asset allocation. Because of this ignorance, they lost everything. These examples demonstrate why asset allocation is so important because keeping your wealth stored in a good, diversified mix of assets is the key to avoiding catastrophic losses.

If you keep too much wealth – like 90% to 100% of it – in a handful of stocks and the stock market goes south, you’ll suffer badly. The same goes for any asset… gold, oil, bonds, real estate, or blue-chip stocks. Concentrating your retirement nest egg in just a few different asset classes is way too risky. Betting on just one horse or putting your eggs in a single asset basket is a fool’s game.

Spread your risk around.

A sensible asset mix should include five broad categories… cash, stocks, bonds, real estate, and precious metals. And, a favorite asset of all long-term investors should be cash. “Cash” simply means all the money you have in savings, checking accounts, certificates of deposit (CDs), and U.S. Treasury bills. Anything with less than one year to maturity should be considered cash.

It’s best to keep plenty of cash on hand so you can be ready to buy bargains in case of a market collapse. Investors flush with cash are often able to get assets on the cheap after a collapse – they can swoop in and pick things up with cash quickly, and often at great prices.

Generally, it’s recommended to hold between 10% and 15% of your assets in cash, depending on your circumstances. In fact, one of the major tenets of good financial planning is to always have at least 6 to 12 months of essential living expenses in cash in case of disaster. If you haven’t started saving yet, this is the No. 1 thing to start today.

Next, you have conventional equity stocks. These are investments in individual businesses, or investments in broad baskets of stocks, like mutual funds and exchange-traded funds (ETFs). Stocks are a proven long-term builder of wealth, so almost everyone should own some. But keep in mind, stocks are typically more volatile than most other assets.

Just like you should stay diversified overall with your assets, you should stay diversified in your stock portfolio. Once, a well-known TV money show host ask callers: “Are you diversified?” According to him, owning five stocks in different sectors makes you diversified. This is simply not true. It is a dangerous notion.

The famous economist Harry Markowitz modeled math, physics, and stock-picking to win a Nobel Prize for the work on diversification. The science showed you need around 12-18 stocks to be fully diversified.

Holding and following that many stocks might seem daunting – it’s really not. The problem is easily solved with a mutual fund that holds dozens of stocks, which of course makes you officially diversified.

Next you have fixed income securities, with are generally called “notes” or “bonds.” These are basically any instrument that pays out a regular stream of income over a fixed period of time. At the end, you also get your initial investment – which is called your “principal” – back.

Depending on your age and tolerance for risk, bonds sit somewhere between boring and a godsend. The promise of interest payments and an almost certain return of capital at a certain fixed rate for a long period of time always lets me sleep well at night.

Adding safe fixed-income bonds to your portfolio is a simple way to stabilize your investment returns over time. For people with enough capital, locking up extra money (more than 12 months of your expenses) in bonds is a simple way to generate more income than a savings account.

Another asset class is real estate. Everyone knows what this is, so we don’t need to spend much time covering this. If you can keep a portion of wealth in a paid-for home, and possibly some income-producing real estate like a rental property or a farm, it’s a great diversifier.

Precious metals, like gold and silver, an important piece of a sensible asset allocation

Precious metals, like gold and silver, are like insurance. Precious metals like gold and silver typically soar during times of economic turmoil, so it’s wise to own some “just in case.” Avoid the mindset of the standard owner of gold and silver, who almost always believes the world is headed for hell in a hand basket. You should remain an optimist, but also a realist and own insurance. Stay “hedged.”

For many years, the goal with hedging strategies was to protect wealth and profits from unforeseen events. Wealthy people almost always own plenty of hedges and insurance. They consider what could happen in worst-case scenarios and take steps to protect themselves. Poor people tend to live with “blinders” on.

So just like wearing a seat belt while driving or riding in a vehicle, it’s important to own silver and gold – just in case. For most people, most of the time, keeping around 3% to 5% of your wealth in gold and silver provides that insurance.

Asset allocation guidelines

There’s no “one size fits all” asset allocation. Everyone’s financial situation is different. Asset allocation advice that will work for one person, can be worthless for another.

But most of us have the same basic goals: Wealth preservation… creating safe consistent income… and safely growing our nest egg. We can all use some guidelines to help make the right individual choices. Keep in mind, what I’m about to say are just guidelines…

If you’re having a hard time finding great bargains in stocks and bonds, I think an allocation of 15%… even 20% in cash is a good idea.

This sounds crazy to some people, but if you can’t find great investment bargains, there’s nothing wrong with sitting in cash, earning a little interest, and being patient. If great bargains present themselves, like they did in early 2009, you can lower your cash balance and plow it into stocks and bonds.

As for stocks, if you’re younger and more comfortable with the volatility involved in stocks, you can keep a stock exposure to somewhere around 65%-80% of your portfolio. A young person who can place a sizable chunk of money into a group of high-quality, dividend-paying stocks and hold them for decades will grow very wealthy.

If you’re older and can’t stand risk or volatility, consider keeping a huge chunk of your wealth in cash and bonds… like a 25%-35% weighting. Near the end of your career as an investor, you’re more concerned with preserving wealth and keeping up with inflation than growing it, so you want to be very conservative.

As a guideline, the big thing to keep in mind with asset allocation is that you’ve got to find a mix that is right for you… that suits your risk tolerance… your station in life. Whatever mix you choose, just make sure you’re not overexposed to an unforeseen crash in one particular asset class. This will ensure a long and profitable investment career.

In summary, asset allocation is how you balance your wealth or net worth assets among stocks, bonds, cash, real estate, commodities, and precious metals in your portfolio. It is the single most important factor in your success as an investor.

References:

  1. https://stansberryinvestor.com/media-article/328231?fbclid=IwAR2z_5CGah4ZGsSJPoMsSX8Tb9jExRTJIWmedbMI7Il18Wjii8RtjzFTDLg
  2. https://www.investopedia.com/terms/h/harrymarkowitz.asp

Asset Allocation Strategy

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Asset allocation is designed to help an investor take short-term fluctuations more in stride.

When you divide your money among a variety of asset classes — stocks, bonds, real estate and cash — you can potentially smooth the ups and downs of financial markets. Diversifying your investments within the major asset classes and investment styles can help balance out a portfolio.

Asset allocation enables you to own a wide selection of investment types to potentially benefit when one asset class does well and limit the downside when another asset class does not. Once you create an asset allocation strategy as part of your comprehensive financial plan, it helps to keep a long-term perspective when the inevitable financial market volatility occurs.

It’s important to note that asset allocation and diversification do not ensure a profit or protect against loss. However, it makes sense to remember your long-term financial plan and asset allocation strategy, and stick with it, no matter how great short-term economic challenges may seem.

A long-term commitment to your asset allocation strategy doesn’t mean you shouldn’t take action during periods of uncertainty. The key is taking the right action. You may discover the original percentages you allocated to different asset classes and types of investments are not in sync with your strategy due to shifts in the market.

Your portfolio may be overly concentrated or under-represented in one area. If so, you can reallocate your assets and ensure your long-term asset allocation strategy is back on track.

Of course during times of market volatility and economic uncertainty, many investors are tempted to move out of stock investments, into the safety of cash positions. Yes, cash is an asset for investors, but understand that you earn nothing with this asset class…no return from cash.

As a result, investors tend to stay on the sidelines until financial turbulence settles, but this may be a costly mistake. One thing previous recessions and bear markets have taught us is that life goes on. In each of the most recent five bear markets since 1987, sell-offs and correction were ultimately followed by economic and market recoveries.

Thus, once stock markets unexpectedly rebound, as they typically have done in the past, you may end up getting left behind during what could have been a good opportunity to benefit from market rapid recovery and gains.

We live in a world fraught with headline risk and conflict, something that will be ever-present. This fact will always be an integral part of the investment landscape. Those who exit or try to “time the market” tend to miss a significant rally. Those who remained invested or rebalanced towards equities tended to boost their returns during a market rally.

The length of time an investor is in the market can make a difference in the amount they will save and invest to potentially grow their investments. If you sell assets while the market is declining, you risk missing upward trends that have historically followed. If you want to retire someday, start saving and investing now. It takes decades of long-term financial planning, saving and investing to get there. 

Always remember…

Learning to manage money. You need to learn and understand core principles of financial planning — long-term investing, risk management, diversification, asset allocation, retirement, estate and tax planning.

Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.

All investments involve risk including loss of principal. Certain investments involve greater or unique risks that should be considered along with the objectives, fees, and expenses before investing.

References:

  1. https://im.bnymellon.com/us/en/individual/articles/letter-from-the-lion/spring-2020/stick-with-a-plan-in-uncertain-financial-markets.jsp