As an investor, you easily can feel frustrated when you see short-term drops in your investment statements.
Many forces beyond the control of most individual investors, including geopolitical events, corporate profits and interest rate movements, affect the financial markets. In any case, it’s important to focus on the things you can control, such as:
- Your ability to define your goals.
This is one area where you have total control. Once you identify your goals and estimate how much they will cost, you can create an investment strategy to help achieve them. Over time, some of your personal circumstances likely will change, so you’ll want to review your time horizon and risk tolerance regularly and adjust your strategy when appropriate. The same is true for your goals — they might evolve over time, requiring new responses in how you invest.
- Your response to market downturns.
When the market drops and the value of your investments declines, you might be tempted to take immediate action in an effort to stop the losses. This is understandable — after all, your investment results can have a big impact on your future. However, acting hastily could work against you. If you can avoid decisions based on short-term events, you might help yourself in the long run.
- Your commitment to investing.
The financial markets almost always are in flux, and their movements are hard to predict. If you can continue investing in all markets — good, bad or sideways — you likely will make much better progress toward your goals than if you periodically were to take a timeout. Many people head to the investment sidelines when the market tumbles, only to miss out on the beginnings of the next rally. And by steadily investing, you will increase the number of shares you own in your investments. The larger your ownership stake is, the greater your opportunities for building wealth.
- Your portfolio’s level of diversification.
While diversification itself can’t guarantee profits or protect against all losses, it can help to reduce greatly the impact of market volatility on your portfolio. Just how you diversify your investments depends on several factors, but the general principle of maintaining a diversified portfolio should govern your approach to investing. It’s a good idea to review your portfolio periodically to ensure it’s still properly diversified.
The world always will be filled with unpredictable, uncontrollable events. But within your own investment world, you have a great deal of control, which gives you the power to keep moving toward all your important financial objectives.
This article was written by Edward Jones for use by your local Edward Jones financial adviser. Edward Jones, member SIPC
– Roberto De Jesus and Amanda Yingling are financial advisers for the Edward Jones branch on Cedarcrest Road in Acworth.