2008-01-28 02:25:24
Panicking During A Market Meltdown Probably Means That Your Portfolio Diversification Strategy is Out of Whack
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I don't care how old you are. I don't care if you are 20 years old or 55 years old.
If word of a market meltdown has you sitting up at night, sweating profusely and worrying about your portfolio, then you need to do some serious work in terms of balancing your investment funds.
The name of the game when it comes to your long-term investments is slow and steady appreciation and diversification of risk. You might be able to achieve 30%+ returns for a short period of time being ultra-aggressive in the markets, but it will come back to bite you in the long-term unless you really know what you are doing.
For the rest of us, a balance is in order. The market fluctuations should not bother you at all. You should be focused on returning 8-10% every year. You should be focusing on different mutual funds in different sectors, from emerging market funds to bond funds to technology funds to money market funds. You should have cash on hand in your portfolio to take advantage of buying opportunities when they present themselves. You should own bonds. You should own some dividend-paying stocks, or at least mutual funds that focus on stocks that pay dividends. You should have exposure to natural resources. You should have exposure to technology. Etc. etc. Basically, you need a balance in your fund, no matter what your age is or how aggressive your investment profile is.
If you balance your portfolio properly, you will achieve decent gains over the years and you will be able to take advantage of compound interest. If you have the proper balance in your portfolio, do you really think that you will care about the fluctuations of the market? You won't - you'll simply be looking for opportunities to put your money to work when the market offers up deals.
Don't fall into the trap of getting over-aggressive and trying to retire within five years. Make your money work for you. When it comes to investing, slow and steady wins the race.
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