Portfolio Perseverance

December 2, 2011

With market fluctuations and continuous financial volatility, many are tempted to give up on investing altogether.  The anxiety and fear that come along with an uncertain economy may seem overwhelming, but today’s show gives you the tips you need to persevere with your long-term investing plan.

The November 2011 Consumer Reports Money Adviser has laid out six guidelines for keeping your head in a volatile market:

  1.  Stick with a long-term plan:  Develop a diversified investing plan and continue to follow it, even if market conditions become temporarily scary.  Adjustments for big changes in the market may be necessary over time, but it is important to act based on a consistent plan, rather than each move of the market.  You can design your own plan or locate a fee-only financial planner at www.napfa.org to assist you with reaching your goals.
  2. Maintain your balance:  It is important to rebalance your account as needed to ensure that you stay on track with your allocation objectives.  A good rule of thumb is to review your portfolio construction annually or if your allocation shifts by 3 to 5 percent.
  3. Fight the impulse to flee:  Some of the best opportunities for an investor are presented when others panic and run from the market.  If you are a long way from retirement, stick it out and take advantage of the chance to buy low and sell high later.
  4. Keep the right amount of cash:  Consumer Reports recommends stashing enough cash to cover at least six months of expenses, with retirees holding one to two years of expenses in cash.  Holding appropriate cash reserves is vital to your financial plan because having that stability will ultimately help you sleep better at night.
  5. Get defensive:  It may be wise to hold stocks in industries that hold up even during a recession.  Some examples of products that people always need are pharmaceuticals, consumer staples, and utilities.  Christine Benz, director of personal finance at Morningstar investment research company recommends Vanguard Dividend Growth (VDIGX), Yacktman (YACKX), and Dreyfus Appreciation (DGAGX).
  6. Don’t invest impulsively:  Be alert for advisers looking to exploit the fear in the economic environment.  Many will recommend unsuitable or fraudulent investments, knowing that investors are especially vulnerable in uncertain times.  Do your due diligence to make sure you are always comfortable with your investment selections.

While financial instability can leave you feeling uneasy, it is not necessary to quit the game altogether.  If you keep yourself informed and follow your long-term plan, it is still very possible to meet your financial goals.

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