Thanks to continued concern over China’s economic challenges, a slowing global economy and the sustained slide in oil prices, Wall Street got off to a rocky start for 2016. While volatility is always unsettling, it’s important to remember markets move in cycles; pullbacks and corrections are unavoidable.
In fact, risks and returns are linked together; you usually have to take some risk to make money. Particularly in a low-interest-rate environment, overly safe investments – such as bonds, CDs or bank accounts – won’t provide much growth. So you may need to balance potential market loss against the danger of flat savings not keeping up with inflation or not lasting through 20 to 30 years of retirement.
The good news is history has repeatedly shown traditional asset classes, such as stocks, bonds and bills, have all grown in the long run. And diversifying your portfolio so assets have little correlation to each other may reduce the effects of volatility. * Of course, your time horizon can impact your risk tolerance. If you are nearing retirement, or are already there, you probably want to have a lower ratio of equities in your portfolio and a greater percentage in other stable investments.
Although no one can predict the future, panicked selling during a downturn is often the worst thing you can do. Think of investors who sold their stocks during the 2008-2009 market dive; they missed a massive comeback in the next five years that could have obliterated their losses.
That’s not to say you shouldn’t reevaluate your portfolio from time to time and consider rebalancing. If it appears a sector’s odds of future success are low, it may be wise to look for an opportune time to sell. On the other hand, a downturn can be a good time to purchase blue chip stocks at a bargain rate.
There is no magic strategy that always works in every environment. There will be times your account balance drops in value. Consulting your financial plan and talking to us when you have concerns can give your logic the boost it needs to keep emotions from running roughshod over your financial goals. If you have questions about the recent market volatility or would like to review your existing financial plan, please call Jordan Dechtman, your Centennial Colorado Investment Adviser Representative at 303-741-9772, email him at Jordan@JordanDechtman.com or visit our website www.JordanDechtman.com to schedule an appointment.
*Diversification does not guarantee a profit or protection from loss in a declining market.
Written by Securities America for distribution by Jordan Dechtman.
