If you’ve been asking yourself any one of these questions and are ready to leave the sidelines to get back into the fray, we’ve got a few tips for you to consider.
1. Diversify, Diversify, Diversify. Investors may reduce exposure to market risk by spreading investments between equities and bonds, across different asset classes and between domestic and international markets. While diversification cannot completely eliminate the risk of loss, staying diversified and allocating your investments in alignment with your age, needs, time horizon and tolerance for risk can mean the difference between some pain and a lot of pain during market downturns.
2. Consider Alternative Investments. Investors who have already taken these steps may want to consider additional ways to diversify their holdings. Returns from alternative investments -— timber, real estate, energy, equipment leasing — often move in an inverse relationship to the equity markets, and thus help to reduce market volatility. However, there are risks and other considerations relative to alternative investments that you should understand before investing money. Be sure to talk to your financial adviser and read the offering information for these types of investments.
3. Consider Using Actively Managed Account Programs. The traditional “buy and hold” strategy, even for the long-term investor, may no longer be appropriate for all investors. In a volatile market, asset managers may be better positioned to adapt to the ever-changing realities of a global market. New programs offer flexible asset allocation processes, often with as many as 80 asset classes, that allow managers to respond defensively to changes in the market or to take advantage of potential opportunities. Keep in mind that these types of managed accounts assess asset-based fees that may be more or less than the fees associated with investments held in traditional brokerage accounts.
4. Consider Using Hedging Strategies to Help Reduce Market Risk. Take advantage of investment products with flexible risk management tools (e.g., put options, which bet against the market). The primary objective of these programs is to limit portfolio loss in any one calendar year by maintaining a consistent level of risk exposure regardless of market conditions, while still seeking to maximize total return, long-term. AT