When planning for your retirement, level-headed investing should always be a top goal. The practice of making calm and sensible investments at all times is sometimes easier said than done. A lot of investors forget to stay sensible in volatile markets, but this is where the risk increases.
Look At Your Whole Portfolio. When investing, do not focus on the extremes, the winners and losers. Total portfolio return is the target. Sound diversification among and within asset classes is the key to a more stable return. Choosing to go with a big investment in one winning asset may not be the best option because it can turn into a negative profit.
Reduce Your Risk As Your Time Horizon Shortens. As your approach to retirement or other key dates shorten, you may want to reduce your exposure to riskier securities. Still, remember that retirement last a long time, and you need some inflation protection. Losing money because of a risky investment would be a setback for your retirement, so stick to less risky securities.
Do Not Expect History To Repeat Itself. Comparing the stock market today to earlier time periods is not a successful way of predicting stock prices. The time that we are living in today is unique, and the choices we make today affect the stock market, not previous cycles.
One thing to keep in mind, the key to successful investing isn’t picking the best stock, and it is not jumping in and out of the market while guessing at the peaks and valleys of the prices. The best possible solution to successful investing is asset allocation planning which is a long term plan that optimizes risk and reward. It allows one to simply receive a maximum reward while reducing the risk to a minimal loss.