It was a year most investors would just as soon forget. But, the biggest mistake you could make is to take your money and run for the hills. It's important to stay invested, otherwise you will just get further off track for your financial goals. Use this time to regroup and re-strategize. Follow these key tips to get your investment plan back on track:
- Enlighten yourself: Take responsibility for learning the fundamentals. When you are more knowledgeable about investing you will be able to make better decisions and you will less likely make any knee-jerk reactions that can hurt you in the long run.
- Manage your risks, not your returns: You really can't manage the return on your investments, but you can manage your risks. If you simply take all of your money out of the stock market and put it into CDs, you will eliminate your market risk, but you will increase your interest rate risk and inflation risk. They key is to devise a strategy consisting of different types of investments that can counter the different kinds of risk. Stocks and gold offset inflation risk. CDs offset market risk. Bonds perform better when stocks don't perform well. Diversification and balance is the key to long-term, stable returns.
- Don't try to time the market: You can try, but you'll be wrong most of the time. The biggest losses investors incur is when they yank their money out of the market after it has already declined substantially, and they fail to get back in until the market has already recovered its losses. People who stay in the market, but adjust their allocations, achieve better returns over time.
- Don't bother with benchmarks: You shouldn't care how well your stocks or mutual funds are performing against the S&P 500. All that matters is that your investment portfolio is achieving an average annual rate of return that will enable you to achieve your goals.
- Don't chase performance. Stay true to your financial goals and investment objectives.