Routinely, the stock and bond markets pretty much follow the sentiment of the day. And, at times, it actually gets to be pretty ridiculous. For instance, the stock exchanges were extremely weak the other day based upon the idea that the Asian and European economies were beginning to show some definite weakness. So, it’s not enough for us to concern ourselves with our own economy, now we have to worry about what’s happening in China? Investors seem to worry about just about everything. Some things are actually happening (the war in Iraq, poor earnings reports, weak economic numbers, and economic stimulus packages) and some things are yet to occur (possible future terror attacks or what Mr. Bernanke “might” say to some congressional committee next week).
Look, our day-to-day routines with our families and our jobs normally guarantee a steady stream of decisions to make and problems to solve. So, why worry about the financial markets. Most of the events that change the direction of the markets are completely out of our hands anyway. What we should be concentrating on is how we can create a portfolio that is relatively immune to these outside events. Create a portfolio that can weather the storm of global uncertainty.
You’ve heard all of it before. Diversification and proper money management are the best methods of insuring that your investments (no matter what they are) will be protected from the highs and lows in the markets. In a diversified portfolio, should one investment react poorly to negative national or international events, you can normally count on another investment to make up the difference.
Examine your personal investment model on a semi-annual basis, or at the very least, annually. Really explore what you are invested in. Do your holdings include stocks, what about interest rate instruments, mutual funds, real estate, commodities, the foreign exchange markets? Choose the opportunities that give you the most comfort. If you can’t sleep at night worrying about your investments, then you shouldn’t be invested in them. Learn as much as you can about the investments you don’t understand that could possibly help your future financial growth. For instance, if you don’t understand REIT’s (Real Estate Investment Trusts), read about them, ask questions, study the topic before you make any monetary move.
Once you are involved in a particular investment, make sure you follow its progress. If you are trading stocks or Forex, always set your stops and limits to guard against losses. If you are investing in a 401(k) plan at work, study your investment options often and rebalance, when necessary. The key to a positive investment life is education.
You can count on the world situation being volatile today, tomorrow, next week, and probably for the rest of your life. The financial markets will continue to show weakness on some days and strength on others. If you meet the challenge of creating a balanced portfolio through diversification you most likely will worry less and definitely have more time to enjoy the most important things your life has to offer, family and friends. It really is that simple.