Investing In Stocks: The Importance of Diversifying Your Portfolio

Over the long-term, US stocks have consistently earned more compared to investment grade bonds. In the same time frame, one hundred dollars in the stock market can return an annual average of ten percent, while bonds can earn around five percent. While the market is constantly fluctuating so you can’t expect this type of increase consistently, historically, stocks do tend to offer more growth potential in the long-term. Because of this, many people who want to diversify their portfolios and save for retirement are turning to ETFs, stocks, and stock mutual funds.

A Dip in the Market

People tend to avoid investing in the market because the volatility can be very stressful. But, in reality, it’s more important to pay attention to how the market behaves over a long period of time as opposed to stressing out over a daily or weekly point drop. This is exactly why we recommend holding onto your stocks for the long-term. Even though there are dips in the market from time to time, by far, stocks offer the most growth potential, just as long as you don’t act hastily and sell as soon as you see a slight drop in value.

The Right Mindset

Keeping your cool when you’re dealing with the stock market is essential. You should look at it this way: unless you sell off your investments, the losses are only on paper. Should you feel tempted to sell your investments as soon as they drop in value, keep in mind that you’re investing for your retirement or another period that’s far down the line. Selling only means you’re locking in your losses. Instead, riding out the market can be a much wiser choice. Additionally, if you regularly save every month and continue to invest when the market is down, you’ll be adding to your savings when there’s a dip in the market. Once the market has finally recovered, you’ll be in a much better position for growth.

Diversify

Remember, you don’t have to invest all of your hard-earned cash in stocks. In fact, many people are now diversifying their portfolios by also investing in oil. The right mix of investments will ultimately be based on your current financial situation, personal goals, retirement plans, and your tolerance for risk. Keep in mind, if you have plenty of time to save for the future, then you also have a higher level of capacity for risk because you will have more time to recover from any type of short-term loss.

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About Robert Harris

Robert is the founder of CNE. He enjoys helping other businesses grow their income year after year

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