The first rule of investing is never lose money and in the financial environment we’ve grown accustomed to over the past four years, losing money seems to be a lot easier than making it. That may feel like the case but investing errors can be the result of being too aggressive or too conservative.
One study conducted by Fidelity found that in the now called Great Recession of 2008, those who pulled their money out of their retirement funds and then reinvested it after the crisis missed out on more than 20% of growth. They took the financial hit as the market went down but they missed out on a large portion of the recovery that would have returned their money to them if they would have left it alone.
As we look forward into what will come next, we’ve put together a few ideas to consider as you think about your portfolio.
Don’t Give Up On Stocks
Stocks definitely take it on the chin any time the investment markets receive any kind of bad news but that doesn’t mean that they don’t have a place in your portfolio. Stocks come in a variety of risk profiles. Income stocks pay dividends that are sometimes higher than bonds yet still have the ability to appreciate in value.
Some stocks, referred to as low beta stocks, aren’t as sensitive to the overall stock market moves. Coca Cola or healthcare stocks like Eli Lilly tend to hold their value quite well because in both good and bad economies there are goods and services that people can’t live without. Healthcare, fuel, and food are a few examples of industries that tend to hold their value in various economic profiles. A balanced stock portfolio should have growth and income stocks.
Don’t Over Trade
You should know what your money is doing at all times but that doesn’t mean that you should change your portfolio holdings every time the markets go up or down. Staying the course with what you have is the best way to build wealth. If there is a substantial change in the fundamentals of a company you own, sell it and get into a name you trust.
Stay in the Game
When things get rough it’s easy to want to take your money and run but it’s not good for your wealth. Nobody can time the market. We don’t know when the market will turn for the better or worse but studies have shown that when you stay in the game and leave your money invested you will make more over time.
The penalties for taking money from your retirement fund are substantial so leave your money in the markets. It’s easy to look at today and tomorrow and act on worry but if we look into history we see that one thing is for certain. Markets go up and markets go down. They hit a rough patch and they recover but in the end, people who leave their money invested for the long term make money.