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During times of market volatility like we’ve seen since the start of 2022, it’s natural to feel a bit skittish about the stock market. It’s a potent reminder that there are risks to stock ownership. Individual stocks are not guaranteed to grow and may lose value. The good news is that the stock market has historically delivered a higher rate of return than other forms of investment in the same timeframe. With this in mind, there are strategies you can deploy to help insulate your portfolio from the natural up-and-down swings of the market, while staying invested for the long term.
Buy and hold. There will always be day-to-day fluctuations in the stock market. Plunging stocks can cause panic selling. Rising stocks can inspire overly optimistic purchasing. A buy-and-hold investment strategy takes a long-term view to investing. It discourages buying or selling stocks in response to market dips and surges. Over time, portfolios governed by this strategy tend to deliver more robust long-term results than ones guided by emotional decisions.
Asset allocation. This strategy involves holding investments across different asset classes to meet your investment objectives. Asset classes include stocks, bonds, cash and alternatives. Each asset class has a different risk profile and upside potential. How much you assign to each asset class will depend on individual circumstances such as your time horizon, tolerance for risk, need for liquidity, tax situation and your financial goals. Investors with a longer time horizon usually can tolerate more risk, so will hold a larger percentage of stocks within their portfolio. Investors with a shorter time horizon may hold more bonds or similar instruments that offer greater security, with lower yields.
Portfolio diversification. Portfolio diversification is another strategy designed to help you spread risk across your portfolio. It involves selecting a variety of investments within each asset class to help minimize risk. For example, by putting your “growth stock” money into several companies that meet growth criteria, you are protected in the event one of those companies fails.
Dollar-cost averaging. This investment strategy takes a disciplined approach to purchasing investments. The idea is to purchase more shares of stocks, bonds and/or mutual funds when prices are low and purchase fewer shares when prices are high. The principal here is to be systematic in your purchasing. Dollar-cost averaging over time usually results in lower average cost of shares in your portfolio, creating greater opportunity for profit as share values rise.
Find an ally for smart investing. Talk with your financial advisor to learn how to implement these and other investment strategies to help grow your investment portfolio. As with all investments, past performance does not guarantee future results. No investment strategy is guaranteed to be profitable or help you avoid losses. Common sense and a balanced approach tend to win the day.
Peter Romano, CLTC, is a Financial Advisor with Ameriprise Financial Services, LLC. in Bluefield, VA. He specializes in fee-based financial planning and asset management strategies and has been in practice for 30 years. To contact him, 276.326.1670 and 524 Virginia Ave Bluefield, VA 24605.
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