To help you better understand what to do when markets turn volatile, it’s important to take some practical steps to help you stay focused on the big picture.
Consider following these steps to help you evaluate whether you need to make changes to your investments.
1. Make your plan – define the big picture
- What is the “big picture” for you? What’s your top priority?
- Write down your plan when you figure it out.
- Update your plan as needed.
- Need help? No problem. Speak with a financial advisor.
2. Evaluate what your risk tolerance is today versus before the volatility
- Low-risk investor: Preserve my principal with minimal risk, even if I don’t generate significant income or returns and may not keep up with inflation.
- Moderate-risk investor: Willing to accept some risks to my principal and tolerate some volatility to seek higher returns and understand I could lose some of my money.
- High-risk investor: Willing to accept high risk to my initial principal, including high volatility, to seek high returns over time. I understand I could lose a substantial amount of my money invested.
3. Get copies of your most recent statements
Know where you stand right now with your asset allocation. Review your current investments to find out how much is in each broad category of stocks and bonds. Take the next step and split it up further by large, medium, small and international.
4. Figure out what type of strategy for asset allocation you’re using
Your allocation strategy is to pursue a portfolio goal of:
- Preserving capital
- Preserving income
- Growth and income
- Aggressive growth
5. Compare your current asset allocation with where your risk tolerance is today
Reevaluate what you have. Does it match?
- Double check your mix.
- Has your risk tolerance shifted?
- Evaluate the quality of your holdings.
- Evaluate stock/equity and bond/fixed income positions.
- Compare your current allocation to your plan and goal.
6. Investigate your investment costs
Managing investment costs is one of the best ways to improve your take-home return. Check to see how each position compares to its category peers.
7. Consider tax efficiency
Are you taking maximum advantage of your tax-sheltered options?