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Managing Market Risk with Long-Term Investing

Posted by Michael J. O'Connor | CWS®, Vice President Investments
September 23, 2015

Managing_Market_Risk_Long_Term_InvestingAfter recent financial ups and downs, managing market risk is on investors’ minds. Volatility in the markets can make people nervous, but it’s important to remember that risk is always present when it comes to investing. Even conservative investments like certificates of deposit (CDs) carry the risk of inflation. And yet, investing is a very important component for growing your wealth over time.

How much should you worry about managing market risk? What can you do when the market becomes exceptionally volatile?

Worldwide economic financial markets are influenced by countless factors, and the markets’ performance is out of the control of those investing in it. When the markets drop, it’s tempting to want to “take control” by removing your money from the markets and getting it back in your own hands. But trying to determine when to get out and when to jump back in can be a risky approach to investing.

Let’s take a look at the benefits of having a long-term investment strategy instead of reacting when the market fluctuates.

Risk associated with normal market volatility

Trying to time the market is risky, and it doesn’t often turn out well for investors.1 Depending on your time horizon and plan for your assets, staying invested with a broadly diversified portfolio over the long-term can be a safer approach than dealing with the uncertainty of trying to buy low and sell high.

Markets fluctuate, sometimes on a daily basis, but if you look at the overall, long-term performance of the stock market, you’ll see a definite pattern of overall growth over time. For investors who are looking at investing for retirement at a later date, keeping investments through market volatility may prove to be a better strategic plan than trying to time the market. However, if timing the market is important to you, you may want to research professional money managers that incorporate it into their strategy as part of your overall allocation.

Reduce issues related to emotional investing

Saving and planning for retirement is hard work, and it can be distressing and very emotional to witness a significant drop in the value of your investments due to market volatility. This emotional distress is what drives many investors to sell their investments during downturns, thus permanently reducing the value of their retirement savings. When you adopt a long-term view of investing, however, you can avoid becoming emotionally driven to change your long-term plans when the market is volatile.

Ability to strategize and plan for your retirement

As we mentioned earlier, the worldwide financial markets are out of your personal control, but that doesn’t mean you can’t strategize and plan for your retirement. While past performance is not indicative of future results, creating a long-term financial plan with your financial advisor can help you diversify your assets and allow you to work together to make adjustments when circumstances dictate or objectives change. If, however, you try to change your plan based on short-term financial downturns, you may derail your plans and do more harm than good.

Once you decide to invest for the long-term, you need a plan. Our Wealth Managers can help you to create a personalized investment plan that suits your family and your retirement goals. Give us a call at 1-800-541-7774 or contact us here to speak to a Wealth Manager about long-term investing.


Sources:

1. FINRA.org

2. The Educated Investor

 

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