When the stock market gets rocky, focusing on your overall financial picture, combined with sound planning, can pay dividends. These five steps can help steady your pulse during market downturns and elevate your financial security.
1. Revisit your financial goals.
Setting clear, prioritized goals — each with steps to achieve the goal, a price tag and a time frame — will help guide your investment approach. Good financial goals, tied to a sound long-term financial plan, typically will survive short-term market ups and downs. For example, a worthy goal for any year might be to save the IRS annual contribution limit in your company’s 401(k). The steps are clear: know how much you’re currently saving through your company’s plan, then figure out how much more you need to save each pay period to reach the IRS contribution limit (use FINRA’s 401(k) Save the Max calculator to find out). Next, work with your employer to implement.
2. Concentrate on asset concentration.
A significant market movement can illuminate concentration risk, the risk of amplified losses that may occur from having a large portion of your holdings in a particular investment, asset class or market segment relative to your overall portfolio. It’s important to diversify across, and within, the major asset classes. Do you hold multiple asset classes (such as stocks, bonds and real estate)? Are your stock holdings spread among different sectors (biotech, electronics, retail and emerging markets, to name a few)? Is your bond portfolio diversified by issuer and type of bond (corporate, municipal and Treasury)?