In a down market like we sometimes experience, it is particularly important to make smart financial decisions. Here are some tips for making it safely through hard economic times.
- Don't Panic. The most common mistake investors make in down markets is to react impulsively. For fathers that can afford to wait out a down cycle, investment advisors recommend that you do so. Selling at the bottom of the market cycle to get cash out to put in other places usually results in a decreased return on investment over time. Riding through the bottom of the wave is usually smart.
- Review Your Allocation Strategy. At least annually, you should be looking not only at the status of your current investments, but also at the way you allocate new money going into a college savings fund or a retirement account. Generally, the more time you have until you need the funds, the more risk you can afford to take. If the feelings of risk you are experiencing are a little too tenuous for you, consider putting your new contributions to these accounts in a less risky fund.
- Consider Buying in a Down Market. Experience has shown that markets rebound and grow over time. The key question is your time horizon. Buying stocks near the bottom of the market can be a good strategy if you have time to ride through the rebound.
- Think About More Conservative Funds. Mutual funds that are mainly composed of stocks are possibly a little risky in a fluctuating market; they are more volatile so there is a good chance for reward but also a good chance for loss. Asset allocation funds that are better balanced between stocks and bonds tend to have more stability in an up and down market. Some investment managers offer what is called a "Life Cycle Fund" which becomes less risky as you age and get closer to retirement.
- Pay Down Debt. If you have consumer debt, you may be paying interest rates at a much higher level than the rate at which you could invest. Paying off consumer loans and credit card balances is a really wise investment in a time when returns on other investment instruments may be uncertain.
- Go For the Tried and True. Many investors in an economic downturn will look for opportunities to invest in more speculative ventures, hoping to make up for earlier losses. Investment gurus suggest that in challenging times, wise investors should stay with tried and true companies that have shown a long experience at weathering economic storms. Avoid the temptation to make up any losses in one investment decision.
- Patience is a virtue in times when the economy is struggling. Avoiding hasty decisions and riding through a downturn usually offers the best return over the long term.