Earning and saving enough for retirement is a continuing process that as life expectancies extend increases the amount that you need to save exponentially. That is why it is so important to understand how to invest your money with the long-term view in order to earn as much from your investments as possible, long past your retirement age.
Sticking it Out
When the economy is bad and it seems like the market is up one day and down the next, it is difficult to know where to invest your retirement funds in order to get the most out of your investment.
The first thing you should do is take a look at your portfolio to see which investments are consistently doing well, and which are consistently doing poorly. Consistency is the thing that you are looking for in a down economy when you want a somewhat safe investment. The trick is not to panic when you see market downturns or a sudden loss on an investment that normally provides a return.
Since traditionally the stock market can earn more in one week than it does in an entire year, it is important to remember that short downturns are nothing to worry about, because you will more than recoup your losses when the market rebounds. So, the best thing that you can do in these situations is hold on to your consistently earning investments, even when they experience a loss from time to time.
ReBalance your Portfolio
Once you have reviewed your investments and have a clear picture of what is consistently earning money and what is not, it is time to rebalance your portfolio. This review should be done once a year in order to maintain your portfolio’s earning capabilities and limit potential long-term losses.
To rebalance your portfolio you will need to realign your assets to meet your end goals. What this means is look at products that are consistently down, and consider selling these stocks or bonds. Using the money from the sold investments look for replacement investments that may be down at the moment, but that historically have provided consistent returns on investment capital.
Doing this allows you to purchase investments with greater return potential at a lower price than when the market is up. This also reallocates low return investment money into products that will boost your overall portfolio without having to put up a lot of cash up front.
The second way to rebalance your portfolio is by looking to see which allocations are substantially outperforming other allocations, making your portfolio top heavy in one area. When you determine where this is happening, it is time to consider selling some shares at the higher price and reallocate those funds to other asset classes that are selling for less.
What this does is provide you with loss security when the market does take a downturn, because your money is spread out evenly and not allocated with the bulk of your investment in one location or type of investment minimizing risk. It also allows you to purchase more of an investment while the price is still down so that you will make more when the price goes back up.