Three Ways To Deal With Uncertainty In 2021 Investing
With so much volatility on the horizon, it’s more important than ever for investors to be ready for more dizzying price drops. We recommend three things to preserve capital and aim to accomplish long-term targets.
- Maintain a diverse portfolio
Diversification is important for creating a portfolio that can withstand market fluctuations. You will reduce risks in the event of a stock market crash by diversifying the portfolio with various uncorrelated asset groups. A diversified fund can also offer above-market returns, depending on the investment mix.
Diversification doesn’t have to be limited to stocks and bonds; there are a variety of potential investments to consider. Farmland, for example, is a low-volatility asset class that suits long-term investors well.
The value of agriculture has grown by more than 6% each year over the last ten years. From 1992 to 2018, gross annual returns on US farmland averaged 10%. Unlike some other alternative investments, such as gold, farmland provides owners with both passive income and capital growth in the form of annual cash dividends.
2) Avoid attempting to time the market.
With the stock market so hot and unpredictable right now, it’s tempting for investors to hold off on investing before the “right” time comes. It’s a common blunder to do so. It’s difficult to predict the next time to purchase or sell on a regular basis.
Although insight is still 20/20, it is obvious that March 2020 was an excellent time to invest. A good investor would learn to predict the future at all times.
Dollar cost averaging is a safer method of investing. Rather than putting all the investments into the stock market at once, invest small amounts at frequent intervals. This is a natural way to make sure that you can benefit from price dips even though you’re buying big.
3) Keep a long-term plan in mind.
It’s better to look beyond short-term fluctuations if you can extend your financial targets as much as you can. When the price declines, too many buyers become frightened and sell. In the long term, this is a sure way to lose money. Instead, the safest strategy is to determine your risk level, risk-adjust your portfolio, and sit out market downturns.
Getting a long-term approach prevents the emotion from spending. And the greatest enemy of an investor is sentiment. You will increase your savings with compounded interest by holding your investments in the economy through downturns.
Greetings, Sam. Thinking about saving for my children is one of the tricks that has helped me keep on track. The long-term pattern should settle out for the next 20 years or so, and these short-term sell-offs will be nothing more than blips on the radar.
Finally, keep in mind that the stock price is more likely to rise than fall. Markets have delivered positive returns 75% of the time over the last 40 years.
