3 Vital Steps to Protect Your Investments in Today’s Market
Keeping emotions under control is one of the most difficult aspects of investing. When stocks are rising, investors feel too smart for their own good and enter a state of euphoria. When stocks plunge, they often hold on in disbelief until they sell at the worst possible moment — the bottom. However, this emotional roller coaster can be slowed through proper allocation methods and realistic expectations.
Given the recent record-breaking year for all three major U.S. indexes, some investors might be tempted to throw caution to the wind and bet the farm on stocks soaring higher once again. The Dow Jones Industrial Average and S&P 500 both defied expectations in 2013 to post their best annual gain in more than a decade. Meanwhile, the Nasdaq returned to levels not seen since the dot-com bubble. Despite these impressive gains, investors should keep the bigger picture in mind.
“You need to be realistic about equity markets and the potential for returns,” says Joe Costigan, director of research at Bryn Mawr Trust, in a phone interview. “You certainly don’t want to get drawn into a false sense of security that we’re going to have 20 percent returns every year going forward, that’s an unrealistic expectation.”
Let’s take a look at three vital steps to protect your investments and maximize your asset allocation.