How to Respond When Risk Tolerance Is Tested
- Look past the immediate event. While the market's pandemic-driven fall was sudden, its recovery was also fairly quick. Eight months after its March meltdown, the market had regained all the lost ground and reached a new record high. During the midst of what appears to be a real threat to your investment portfolio, it can be difficult to anticipate a more favorable environment. Yet, while past performance can't guarantee future results, every historical market decline has been followed by a recovery.
- Understand that the Dow isn't your portfolio. When the Dow Jones Industrial Average and the other major market indexes such as the S&P 500 fall precipitously (or shoot up), it makes headlines. But the Dow and the S&P 500 only track the performance of large U.S. companies – and while their performance may be an indication of the U.S. economy, they aren't going to track the results of your portfolio, which should ideally include a personalized mix of large-company stocks, small-company stocks, international stocks, bonds, government securities and other investments.
- Keep your emotions out of your investment moves. The market will fluctuate constantly – but you should always try keep your emotions in check. Excess exuberance when the market rises, or extreme despondency when the market falls, can lead you to make poor decisions. Specifically, we may buy when we feel good (when the markets are up) and sell when we feel badly (when markets are down). Your heart and your emotions may drive your financial goals – creating a comfortable retirement, sending your kids to college or leaving a legacy for your family – but when you invest for these goals, you should use your head.
This article was written by Edward Jones for use by your local Edward Jones financial advisor. . Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation. For more information, see EdwardJones.com.