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The Importance of Staying Focused on the Long Term
Over time, equity markets have experienced a series of ups and downs. The best way to deal with these market fluctuations is to remember your investment goals and stay focused on the long term.
With a properly diversified portfolio of investments geared towards meeting your financial goals, the day-to-day fluctuations of the markets shouldn't affect your plan. If you find yourself distracted by dramatic headlines in the financial news, these steps will help you stay focused:
- Know the potential volatility of your investments
This will help you maintain your perspective during a performance crunch.
- Assess the amount of risk you are comfortable with
If you cannot bear the thought of your investment going down in value, stick with guaranteed or low-risk investments. If the prospect of market fluctuation doesn't alarm you, and you're patient, consider devoting part of your portfolio to investments geared for growth.
- Diversify your investments
Combining a variety of investments with different characteristics helps to stabilize returns and reduce volatility.
- Gear your asset allocation towards your goals
Asset allocation involves combining investments from the three main asset classes: equities, fixed income, and cash.
- Look at the long term
The longer your time frame, the better chance your investments have of reaching their potential.
- Don't panic
Don't sell just because an investment declines. If you bail out at the bottom, you're locking in losses, and missing out on potential future profits.
- Don't jump from to investment to investment
Many investors are prompted to change their portfolios on the basis of unusually strong one-year returns in another type of investment. Last year's winner isn't necessarily going to be next year's top performer.
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