Is the recent stock volatility in the market making your head spin?
You’ve probably heard the comparison between the current stock market and a roller coaster ride. Both have a lot of sudden ups and downs that can make keeping your lunch down a chore. But ask yourself this question- when the roller coaster is plummeting downward, do you jump out because it’s scary? No, you ride it out. In fact, historically with the stock market, the longer you rode the better off you were. But with the uncertainty and wide swings in the market, especially lately, it’s understandable if you’re a little hesitant to stay the course.
Remember to use time and diversification to your advantage. The risk associated with a lot of investments is shortened with the passage of time. Of course returns will fluctuate year to year but holding on for longer periods has historically provided less risk. It’s impossible to know how the future market will perform. That’s why a diversified portfolio, of multiple types of investments that respond differently to changing economic factors, may also help you reduce the risk and help you reach your long-term goals.
Just remember to keep your eyes on the long- term prize, and you’ll be fine. It can be a little dizzying when you first get off a roller coaster, but it wears off.
First: A spelling correction: “It can be a little dizzying when you first get off a roller coaster, but it WEARS off.”
Second: How do you know if your portfolio is diverse enough to stay the course through choppy investment times? What is a way to measure diversity in one’s portfolio?
In general, a portfolio that is 60% stocks and 40% bonds, called a “balanced portfolio”, is considered a reasonable allocation. Most mutual funds will show you what the balance is between stocks and bonds. But you may be more comfortable with a portfolio that is more volatile (higher in stocks) or less volatile (lower in stocks), depending on your age and the length of time before you need to access the money. The trick is to choose a balance that is right with you and then not try to time the market.