3 Surprising Ways You Can Benefit From a Great Credit Score
Great credit could work to your advantage. Read on to see how.
Just as some of us seem naturally wired to be more fearful of heights or snakes or darkness than others, so too are some of us nervous investors at our cores. We can tell ourselves that stock market dips happen often, and we can remind ourselves that the U.S. market has a long record of recovering from downturns. But at the end of the day, the fear that we might lose a ton of our hard-earned money can be difficult to dismiss.
Take it from someone who’s been there. I’m a firm believer in the power of investing, and I’ve been doing it for many years. But I also know what it’s like to lie awake at night worrying about my portfolio during periods of volatility. And it took a long time for me to calm my fears and adopt a more zen approach to buying and holding stocks.
One thing that really helped me ease those stock market fears was taking active steps to protect my portfolio. If you’re a nervous investor by nature, these moves might help you as well.
Image source: Getty Images.
1. Invest appropriately for your age
Stocks can be risky, and if the value of your portfolio tanks at a time when you need to take cash out of it, you could end up locking in serious losses. But if you make a point of using an allocation strategy that’s suitable for your age, that shouldn’t be as big of an issue.
Right now, I have a lot of my portfolio in stocks. But I’m also not planning to retire for a number of decades, so for me, that allocation makes sense. Say the stock market tanks tomorrow and it takes two years for my portfolio to regain its lost value. Since I’m not planning to cash out my stocks anytime soon, that near-term blip may not end up affecting me at all.
If you’re getting closer to retirement, I’d strongly recommend that you assess your portfolio and make sure you’re not too heavily invested in stocks. Having a healthy percentage in safer alternatives like bonds will give you assets to tap that likely won’t decline in a correction or bear market, and cushion your portfolio against the possibility of a stock market crash in the not-so-distant future.
2. Maintain a diverse portfolio
Even though I’m not planning to tap my investments for many years, I’m still a firm believer in diversification. Owning an array of stocks across a range of market segments helps me feel less worried about potential downturns that might land most heavily on specific sectors.
For example, I happen to own some tech stocks. But do tech stocks comprise 90% of my portfolio? No. That setup would make me uncomfortable, because if tech stocks were to take a notably hard hit during a market crash, my portfolio value would sink big time.
A good way to ease your stock market fears is to maintain a nice mix of stocks. And you should aim to invest outside of stocks, too.
I also like owning publicly traded REITs (real estate investment trusts). Their shares trade in the same way that stocks do, but their values don’t always rise and fall directly with stock market fluctuations. And because they are required to distribute most of their profits to their shareholders, they can be solid income investments, even if they don’t always deliver the most impressive share price growth. You may find that REITs fit well within your investment strategy too.
3. Have cash on hand for emergencies
The most effective strategy I’ve employed in my efforts to become a calmer investor is maintaining a solid emergency fund.
I tend to keep about 12 months’ worth of living expenses in the bank. Most people can get away with less, but I have my reasons (such as being self-employed and therefore ineligible for unemployment benefits) for wanting a bigger cushion.
Having that cash in the bank has, in the past, allowed me to leave my investments alone when I’ve needed money during times when the stock market had taken a dip. Boosting your emergency cash reserves might help you avoid selling shares at inopportune moments too.
More wealth, less stress
Investing can be a nerve-wracking experience — but it doesn’t have to be. It’s OK to be a little anxious about it, as long as you use that anxiety to guide you toward tactics that can help you ride out the inevitable market downturns. With the right strategies, you’ll be able to buy and hold stocks for the long term with more confidence — and much less stress.
The $16,728 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.
