Because of what’s been going on in the market, you may be wondering if you should make changes to your investment portfolio. We can’t tell you how to handle your investments in a volatile market, but this Investor Alert will give you the information you need to make a good decision. Think about these important things before you make a decision:
- Draw a personal financial roadmap
Before you decide to invest, you should sit down and take an honest look at your whole financial picture. This is important, especially if you’ve never made a plan for your money before.
First, you need to decide what you want to achieve and how much risk you are willing to take. You can do this on your own or with help from someone who knows about money. You can’t be sure that your investments will pay off. But if you learn the facts about saving and investing and stick to a good plan, you should be able to gain financial security over time and enjoy the benefits of managing your money.
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- Figure out where you feel most comfortable taking risks.
There is some risk with every investment. You should know that you could lose some or all of your money if you buy stocks, bonds, or mutual funds. Money you put in securities is usually not federally insured, unlike money you put in banks or credit unions, which is covered by the FDIC or NCUA. You could lose the money you put in, which is called the “principal.” This is still true even if you buy your investments through a bank.
If you take chances, you might get a better return on your money. If you have a long-term financial goal, you are more likely to make more money by carefully investing in asset categories with more risk, like stocks or bonds, than by limiting your investments to assets with less risk, like cash equivalents. On the other hand, putting all of your money into cash investments may be a good choice for short-term goals. People who invest in cash equivalents worry most about inflation risk, which is the chance that inflation will grow faster than returns and eat away at them over time.
- Think about investing in a good mix of things.
A portfolio of different types of assets with different investment returns can help an investor avoid big losses. There have never been returns on stocks, bonds, and cash all at the same time. Things in the market that help one type of asset can hurt another. When you invest in more than one type of asset, you lower the chance of losing money and even out the returns on your portfolio. You can make up for losses in one type of asset by making money in another.
How you divide up your assets can also affect whether or not you reach your financial goal. Most financial experts say that if you are saving for retirement or college, you should have some stocks or stock mutual funds in your portfolio.
- Don’t put too much money into your employer or other stocks.
Investing in different things lowers risk. Put your eggs in more than one basket. it’s. You risk a lot if you put a lot of money into your employer’s stock or any other stock. If that stock goes down or the company goes out of business, you’ll lose a lot. - Start and keep a fund for emergencies
Most smart investors put enough money in an investment product to cover an emergency, like being laid off suddenly. Some people save up to six months’ worth of their income so they know they will always have money when they need it. - Get rid of your high-interest credit card debt.
The best and safest way to invest is to pay off high-interest debt. Pay off credit card debt with high interest rates as soon as you can. - Dollar cost averaging.
“Dollar-cost averaging” keeps you from investing all of your money at once by adding to it slowly over time. If you invest the same amount of money often, you will buy more when prices are low and less when prices are high. - Use the job’s “free money.”
Many retirement plans offered by employers match the amount you put in. If you don’t put in enough to get the full match from your company, you lose “free money” for retirement. - Think about how often you should rebalance your portfolio.
Rebalancing means putting your portfolio back to how it was when you started. Rebalancing makes sure that no one type of asset takes over your portfolio and brings it back to a reasonable level of risk. - Don’t do anything that could cause fraud.
Con artists read the headlines. They often use news stories that get a lot of attention to attract investors. The SEC says that before you invest, you should ask questions and check the answers with a neutral source. Talk to friends and family before you invest.
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