In the face of fluctuating markets and declining investments, many investors are left wondering what their next move should be. Should they buy more, sell off their holdings, or simply wait out the storm? Here are some strategies that successful investors employ to bolster their portfolios and maintain their confidence in the face of uncertainty.
Successful investors often adopt a long-term approach, focusing less on daily stock tables and mutual fund quotes and more on the bigger picture. They understand that the market is subject to short-term fluctuations and choose to ignore daily market reports and news headlines. This approach allows them to maintain their composure and make informed decisions rather than reacting impulsively to market changes.
Consider when you will need your investment funds. If you have a long time before you need the money, you can afford to weather a long bear market. Historical data can provide some reassurance. For instance, according to Ibbotson Associates, the worst 30-year stretch for stocks was the three decades through August 1959, during which stocks still climbed 7.8% a year, enough to turn $10,000 into $95,000.
In times of depressed stock prices, consider increasing the amount you invest. You can get more shares for your money, essentially taking advantage of a sale on stocks.
The future is uncertain, and no one knows which sectors might lead the way next. To ensure that you get a piece of the action, diversify your portfolio. Diversification also cushions the effect of downturns that affect just one market segment.
If you've been thinking about converting your individual retirement account to a ROTH IRA, now might be a good time to convert, as taxes should be smaller because of the market decline. The advantage of converting to a ROTH IRA is that once retired, all the money withdrawn from the ROTH will be tax-free.
Spend some time assessing your investment portfolio. What is your risk tolerance? Are you willing to exchange higher returns for greater fluctuations? If you decide to sell off part of your holdings because it is no longer appropriate for you, do so because you have a good reason, not because the market is down.
Timing the market and chasing after hot stocks seldom works. Most people end up buying high and selling low with this thought process. Once again, think long-term and your successes will be greater.
Remember, many people may be selling now, but for every share sold, someone is buying. So who's smarter, the ones buying or the ones selling? You decide!
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