Regardless of the market, your investment strategy should be based on your retirement goals, number of years until you retire, your financial circumstances and your tolerance for risk. That doesn't mean you should etch your plan in stone; you should still review your objectives or strategies from time to time. It does mean that your strategies should not be overly influenced by short-term market moves, but focused on the opportunity for long-term gains in the market.
Here are some strategies to help you cope during this troubled time:
Think of your investment portfolio as a pie cut into three pieces — that's asset allocation. It's simply a way of investing your money among the three main asset classes:
Historically, each asset class has reacted differently to economic conditions. When one asset class is doing well, another one may not be doing as well. By putting some money in each class, a drop in one investment may be offset by a rise in another.
If you need help determining your asset allocation, try the Asset Allocation Profiler, which provides model portfolios based on investment time frame, objectives, risk tolerance and personal financial considerations.
Like asset allocation, diversification follows the saying, “Don't put all your eggs in one basket.” If the basket drops, you may lose most or all of your eggs. The same thought applies to your nest egg. Mixing your money among the three asset classes may help reduce risk, but splitting your money within the categories of cash alternatives, bonds and stocks helps to spread your risk too. Especially when you invest in stocks, select from a variety of sizes (small-, mid- and large-cap stocks) and styles (growth, value and blend).
By investing regularly through payroll deduction in your retirement plan, you are putting dollar cost averaging into practice. More shares are purchased when prices are low and fewer shares when prices are high. The result: The average cost per share may end up being less than the average price per share.
You might be considering lowering or stopping your contributions during this uncertain market. This will also lower or stop any advantages of dollar cost averaging, which may expose you to the risk of missing potential returns once the market recovers.
Instead of trying to make a “killing” or avoid losses in the stock market, consider the length of time needed to meet your investment goals. Then invest accordingly, following the three strategies above. You may have a better chance of making your retirement dreams a reality even during turbulent times.
Recordkeeping and administrative services for the plan are provided by J.P. Morgan Retirement Plan Services LLC (JPMRPS); securities transactions for the plan may be introduced by J.P. Morgan Institutional Investments Inc. (JPMII). Member: FINRA/SIPC. JPMRPS and JPMII are affiliates of JPMorgan Chase & Co.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than original cost. Past performance is no guarantee of future results.
Diversification does not assure a profit nor does it protect against loss of principal. Diversification among investment options and asset classes may help to reduce overall volatility.
Dollar cost averaging does not ensure a profit or protect against a loss in declining markets. This investment strategy involves continuous investment in securities, regardless of fluctuating price levels. An investor should consider his or her financial ability to continue purchases in periods of low or fluctuating price levels.
This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.