3 Ways to Improve Your Investment Decisions

DEWITT, Mich. - Jan. 14, 2019 - PRLog -- How are you feeling about the current market climate? Political uncertainty, the longest bull market in history, Federal Reserve interest rate hikes and this year's higher volatility are making many investors nervous. As markets move into the later part of this cycle, here are three actions you can consider to help improve your investment decisions.

1. Look at the whole picture.

It's easy to get distracted by the latest headlines about the midterm elections, tariffs, rising interest rates or other worries. Current market conditions are important, but they aren't the whole picture: Your financial goals are the North Star that sets your course. Step back and consider whether your goals are affected or have changed.

Also, is your comfort with risk and volatility different? If so, you may need to make decisions about your investment portfolio, too. A careful review with your financial advisor can help you determine the best actions for your situation.

Since stocks and bonds have performed differently over time, owning the right mix can help your investments stay on course over time. But market volatility isn't the only risk to consider. Unexpected events and life changes also play major roles in how you navigate. Make sure your strategy includes protecting your family from other risks as well.

2. Check the facts.

U.S. stocks have gained more than 300% since this bull market began in March 2009, racing ahead of most other investments. We think they'll continue to rise over time, supported by solid economic growth and strong earnings growth.

And while this may be the later part of the bull market, don't assume it's at the end. Bull markets don't die of old age – they're usually killed by sharply rising interest rates or an unexpected shock.

However, the future rarely matches the recent past, so it's prudent to set realistic expectations and prepare for changes. We recommend rebalancing your investment portfolio as necessary by reducing some investments that have performed well and adding those that have lagged behind. You may need to reduce U.S. large-cap stocks and add bonds and international equity investments. As the chart on the left shows, a portfolio that includes a wider variety of investments varies less over time than a portfolio containing only stocks.

In addition, you may need to consider adding a wider variety of asset classes including small- and mid-cap U.S. stocks. Historically, they've outperformed large-cap U.S. stocks when economic growth accelerated, although they tend to be more volatile.

3. Take your time.

The return of normal volatility means stocks are likely to drop sharply from time to time, accompanied by scary headlines and predictions of further declines. If you're thinking about selling in response, we suggest you pause and reflect rather than acting immediately.

A well-constructed investment portfolio is designed to weather higher volatility, so you may not need to make any changes. You might even consider adding equities during pullbacks to take advantage of lower prices.

Remember, time in the market is more important than timing the market. Your reactions to short-term market moves are critical determinants of long-term performance. To keep your investments on track toward your long-term goals during more volatile markets, stay invested. Patience and discipline can help keep your strategy in place.

Source: Morningstar Direct, 12/31/2017. The hypothetical portfolios are for illustrative purposes only. Results may vary for a portfolio with similar holdings. The hypothetical portfolios consist of: 1) 100% U.S. large-cap stocks represented by the S&P 500 Total Return Index. 2) 65% U.S. and international stocks and 35% bonds represented by 48.75% S&P 500 Total Return Index, 16.25% MSCI EAFE NR Index, and 35% Barclays U.S. Aggregate Bond Index. Investing in stocks involves risk. The value of your shares will fluctuate, and you may lose principal. The prices of bonds can fluctuate, and an investor may lose principal value if the investment is sold prior to maturity. Past performance is not a guarantee of how the market will perform in the future.