Staying out of the market puts financial goals at risk
If you’ve decided you’re better off staying out of the markets, you’re not alone. Many investors still feel uncertain with the after-effects of the economic downturn, and they’re concerned about their savings being diminished. It’s valid concern, especially when headlines today continually reminding us how risky investing can be.
However, staying out of the market creates its own risks.
Many investors still have money in either cash or cashable short-term investments like money market funds, guaranteed investment certificates (GICs), and low-interest rate bank accounts.
These investors are staying out of the market to protect their capital from market volatility. This strategy can have long-term consequences to their financial security. By limiting the growth potential equity markets can provide, low or no interest rate investments mean individuals aren’t keeping up with inflation. This could create a scenario where they may not have enough money to meet their goals.
During periods of market volatility, it’s important to have investment funds with some component of equities, if appropriate, as part of your overall portfolio. By including sound investment principles into your financial security plan, and staying invested for the long term, you’re more likely to meet those goals.
Use sound investment principles
Maintaining a long-term view and being properly diversified are two key principles for managing volatility. A portfolio with a variety of investments – like bonds and equities from various sectors around the globe – that match your risk tolerance is called asset allocation. It’s something your financial security advisor and investment representative can help you put in place.
Having a wide range of investments and a long-term outlook works well with the investment strategy called asset allocation. Asset allocation is a relatively simple concept to explain and a much more difficult one to implement. Done effectively, the result is an investment portfolio designed to create the best return based on a client’s comfort level with risk.
Implementing this model is no easy matter. You have to select the right mix of investments, including diversifying among asset classes, geography, investment management styles and sectors.
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