The year 2022 has already presented challenges for investors, with equity markets experiencing significant volatility and bond markets showing unpredictable movement. Much of this can be attributed to external events. The most notable triggers are the Russian invasion of Ukraine, a prolonged period of higher inflation, and a change in monetary policy by the Federal Reserve.
Times like these can cause investors anxiety. As you watch the markets go up and down, sometimes dramatically in a day, it’s natural to wonder if it’s time to make changes to your investments. Before doing so, it’s important to think about your finances in the context of the bigger picture and seek the advice of a professional who can help you assess what actions, if any, you should take. Here are five tips to get you started.
#1: Don’t let daily events influence your decision-making too much
It’s easy to get overwhelmed by the day’s headlines, especially if seemingly bad news piles up and negatively impacts the markets. Please note that we have seen many periods where the markets suffered sharp declines. However, historically, markets as a whole have always made up for lost ground during short-term setbacks. Headlines come and go, but creating an effective long-term strategy must remain your primary focus.
No. 2 — Re-evaluate your risk tolerance
If you are uncomfortable with market volatility, you may need to re-examine the level of investment risk you are comfortable with. Periods of market volatility are often a real test of your portfolio’s ability to withstand temporary setbacks. Another consideration is your time horizon. For example, if you are within five years of retirement, you may want to consider reducing the risk level of your portfolio to protect yourself against the impact of a major recession that happens at the wrong time, just when you need the money to The retirement.
No. 3 — Stay adequately diversified
Once you have determined your risk tolerance, the next consideration is diversification. Maintain an appropriate balance of stocks, bonds, and other types of investments. Also, make sure you don’t have a concentrated position. As a general rule, no single holding should represent more than 20% of your asset mix. This includes company stock that you may have in your workplace retirement plan.
No. 4 — Continue or expand systematic investments
While volatile markets can be a concern, they shouldn’t affect your ongoing investment plans. If you make regular contributions to your work savings plan or other accounts, it’s best to keep those investments. If the markets go down, your regular contribution will buy more shares of the investment. That could benefit you in the long run. If you have the ability to save more through systematic investing, don’t hesitate to increase the amounts you save on a regular basis.
No. 5: Review your strategy with your financial advisor
It may be helpful to discuss your financial situation in the context of current markets with your financial professional. They will be able to help you assess your current position, whether your portfolio carries an appropriate level of risk, and whether there may be investment opportunities you should consider today. Having a conversation about how best to approach today’s markets can make all the difference and help you stay on track to achieve your most important goals.
Bronwyn Martin is a Financial Advisor and Chartered Financial Consultant with Martin’s Financial Consulting Group, a Wealth Financial Advisory Practice of Ameriprise Financial Services LLC. in Kennett Square and Havre de Grace, Md. She specializes in fee-based financial planning and asset management strategies and has been in practice for over 22 years. To contact her: www.ameripriseadvisors.com/bronwyn.x.martin.