GAUGING MARKET RISK

Watching the day-to-day rise and fall in the price of your stocks and funds that hold stocks can feel like a roller-coaster ride. However, you can help yourself to feel more grounded by following these tips to reduce dramatic fluctuations in your retirement savings plan.

Select the Right Mix of Investments

Stocks, bonds, and money market instruments tend to respond independently to market forces. So, when one type of asset is decreasing in value, another may be increasing. By spreading your money among different asset types, you can help minimize the impact of the downturns, while still taking advantage of the upswings. If one asset type in your portfolio is doing poorly, it can be very reassuring to know that another asset type may be achieving better returns.

Update the Mix of Investments

As each type of asset earns a different rate of return, the way you originally divided your money will change. For example, you may have decided to put 60% of your money in stocks, 30% in bonds, and 10% in money market instruments. If stocks have performed poorly for the past six month, their value may have decreased enough to represent only 50% of your portfolio. If the original mix of investments you selected is still right for you, then you might increase the percentage of future contributions going to the stock portion of your portfolio. At a minimum, you should update the mix of investment once a year. If we experience a period of extreme market fluctuations, then you will need to update the mix more frequently.

Stay with it

Staying power is very important in a long-term investment strategy. The contributions you make to your employer-sponsored retirement plan each pay period are a great way to ensure that you are investing at regular intervals on an on-going basis.* In this way, you will buy fewer shares when prices are high and more shares when prices are low. The additional shares you buy when prices are low will help you make the most of any future market upswings.