As most of you have recently seen the stock market is going through some volatility and the debt problems of Greece and Europe have a lot of people nervous. All of these are very valid reasons to feel scared and want to pull all the money out of your investments and hide it in a mattress or inside the walls of your home (like people did during the great depression). However, with these volatile times its important to stick to some simple reminders to save you from making bad choices and buy stocks cheap while everyone else is scared.
- Dollar cost average – slow and steady wins the race. By dollar cost averaging into well diversified index funds then you are taking the emotion out of investing in good and bad times. We never know when the high or low is and this will provide you with more shares and at a lower cost per share then if you were to “time the market” (i.e. Pick the bottom). Definition of dollar cost averaging.
- Check your asset allocation – during volatile times it’s always good to revisit your risk tolerance and the right percentages of stocks, bonds, and cash your want in your portofolio. Typically it’s smart to take 110 minus your age to figure out the percentage of stock you should have in your portfolio. For example, if you are 30 years, old, then 110 – 30 = 80% stocks and 20% bonds/cash. However, if you are having a hard time with the volatile swings in your portfolio, then maybe racket it down to the risk level you are comfortable with. Know your risk tolerance.
- Invest in good index funds – a strong portfolio is one that is well diversified in a myriad of Large Cap (S&P500 index), Small/Mid Cap index, International index, and bond index funds. These funds will help diversify your risk for large market swings and capture gains in markets that are seeing cyclical strength. Marry this strategy with dollar cost averaging and you’ll be well on your way to portfolio that is being cheap stocks that are well diversified
- Turn off CNBC – too often these market shows create too much unneeded noise in your life and bring emotions back into your investing. Remove the noise and stick to your guns – barrel one dollar cost averaging and barrel two asset allocation.
Hope these investment strategies will be friendly reminders for you to keeping a level head during uncertain times. By following these simple steps it will help you buy stocks cheaper over time, and grow a well diversified portfolio. If you ever need help with private banking, check out this investment bank.