The credit bubble bursting. The real estate bubble bursting. The Lehman Brothers bankruptcy. The crises in the Middle East. Record low interest rates. Unemployment. A presidential election.
All of these things created a perfect storm of uncertainty for investors. Many have been standing on the high dive, unsure whether or not to take the plunge.
So how can you combat your worries? Consider these quick tips.
1. Wade into investing with dollar-cost averaging.
The idea behind dollar-cost averaging* is to invest a fixed amount in securities at set intervals. By doing so, you buy more shares when the price is low and fewer shares when the price is high. This lowers the overall cost per share and lessens the risk of investing a large amount in a single investment at the wrong time.
Dollar-cost averaging is a nice intermediate step for those who want to walk before they run with investing.
2. Dip your toes into multiple types of investments.
Don’t put all your eggs in one basket. Diversify.** However you want to say it, it’s extremely important.
You may feel you’re diversified if you have large-cap, mid-cap and small-cap stocks. This is true to a point, but those assets are still fairly correlated with each other – movement of one often relates to movement in another. The same can be said for international markets.
The need is greater these days to make sure you’re better diversified. You may need to get into areas you haven’t focused on as much in the past, such as emerging markets or real estate.
3. Gaze into the deep end (and grab a life preserver).
Rethink your objective and time horizon. If you still have a long time before you need to reach your goal (retirement, a large purchase, etc.), you may be OK with the investment strategy you’ve chosen. If your time horizon or objective has changed, you need to reconsider how your money is allocated and invested. Begin with the end in mind and plan a road map.
And above all, ask for help. Your risk tolerance and the specific nature of your goal drive which products you need and investment strategies will work best. Talk to your Modern Woodmen financial representative about your specific financial situation.
*Dollar cost averaging does not guarantee a profit, nor assure against loss in a declining market. Dollar cost averaging involves a continuous investment in securities regardless of fluctuating prices, therefore an investor must consider his or her financial ability to continue purchases through periods of low price levels.
**Diversification does not assure a profit and is not a guarantee against loss.