When the stock market takes a hit, investors get worried about their money. Will their retirement plans be affected? Will they need to work longer due to fluctuations in the stock market?
Based on years of research, the best option for investors is to work with a quality investment firm. They are your best option to help you understand what investment routes to take, and how much you can afford to invest. Stocks continue to outperform all other investments, making them the smartest investment option for long-lasting returns.
Insurance for Your Investments
Managing your risk is essential to investing. You should look at investing a large portion of your available money into stocks, and a decent amount of money into U.S. Treasury bonds. Bonds do not provide a high return, but they act as insurance for your riskier investments. When the stock market fluctuates, bonds give you money to fall back upon. Bonds normally provide a return of 5% for their asset class. If you have 90% of your investments in high-risk stocks, always place 10% into the bond market to protect your portfolio from losing everything if you have stocks that do not perform.
Ignore the Short Term
Retirement may be a few decades, or a few years away. Speak to your financial advisor about your situation, and if you should invest in short-term, high-risk stocks. Generally, these stocks lose money rapidly. In 2009, stocks lost 37% of their value, which crippled retirement accounts for many investors. The short-term stocks can be dangerous to your financial health, and should be avoided as you seek stocks that will provide steady returns.
Younger investors can afford to play with high-risk stocks. This is because they have a longer amount of time left in the workforce. This allows them time to earn back any of the money they end up losing on high-risk stocks. Risky investments are enticing to investors as they can earn back some huge returns. There is no way to predict which risky investments are going to pay off, and herein lies the problem investors face. Patience is essential when it comes to investing. Returns take time to accumulate, and most investors find that long-term bonds will pay off well when they want to see steady returns. A financial advisor can sit down with you and discuss your risk tolerance.
Inflation can really hurt an investment portfolio. This can be a major risk to your investments, since inflation rates can decrease the value of the money in your investment accounts. This is why it is important to look at which investments offer the highest long-term returns, and to consider using Roth accounts. With Roth accounts, you pay all your taxes now, instead of when you retire and start pulling money from the account. Diversify your investment portfolio to reduce your risk burden, and prevent yourself from losing everything if the stock market takes a major hit in the future.
Candice Mahoney is a financial blogger. She is particularly interested in modern and innovative oil and gas investments, and is eager to see how these investments can yield long-lasting returns.