These Unpredictable Markets
In the first half of 2011, the stock markets had been fairly cooperative. For the most part, we saw gains from the majority of the indices. Since then, the markets have been less than hospitable. While the past few years have taught us to be comfortable on a rollercoaster ride, the past couple of months have been more like riding on a Yo-Yo.
Markets such as this present challenges for most investors. Without a clear direction up or down, investors have trouble deciding how and where to invest their money. Some are looking for security and moving their money back into cash and bonds while others are using the down days as opportunities to buy into stocks.
Sage Advice: The average investor will find that the old advice still rings true. Most of you have likely been told to buy low and sell high, stay invested for the long-term, and diversify. Over the past ten years, you have likely heard those sayings too often and are looking for someone to tell you something new. While these are wise ideas, following this advice doesn't mean that you have to stay paralyzed like a deer in headlights.
A Fresh Take: This may be a time for a change. Review your investment portfolio to see if there are any opportunities for adjustment to your allocation. First, you may have some investments in areas such as emerging markets that have performed well over the past few years. You may want to pare back some of your investment in this asset class and use the proceeds for something else. By making changes such as this, you're effectively selling the investments while they are higher than what you paid and buying other investments while they are lower than where they recently traded.
Second, you may want to look for opportunities in sectors and asset classes that you haven't been utilizing. Many people have some money invested in stocks of large companies or international firms, but have little in medium and small businesses. When it comes to fixed income, many people have U.S. Treasuries and corporate bonds, but have neglected to add international bonds to their portfolio. You may want to look into other fixed income sources as well, such as convertible bonds or inflation protected bonds. Making these changes could allow you to better diversify your portfolio.
Third, look into different investment vehicles for possible benefits to your portfolio. For a long-term investment, consider real estate. Whether you use traditional real estate purchases or investments through a brokerage firm, real estate is currently at a "low". Real estate isn't usually liquid and could still go down in value, so continue to think of this as a long-term strategy.
You may want to look into other vehicles such as annuities. Today's annuities are different from those offered before the tech bubble burst. Annuities now come with the ability to invest a portion of your money in equities while maintaining income or principal guarantees. While annuities may have fees and surrender charges, many like the idea of having equity upside with some downside protection.
All three of these ideas still enable you to be invested for the long-term while following the advice to buy low and sell high and to stay diversified. There may be other ideas that would be appropriate for your portfolio based on your specific risk level and objectives. See a financial advisor to help determine what is appropriate for your situation.
This article is for informational purposes only and is not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing may involve risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price. Investing in international investments may carry additional risk such as currency changes and political instability. Investing in small and medium-sized companies may carry more risk than investing in larger firms. No strategy guarantees performance or protects against a loss.
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