Dramatic Price Changes

Dramatic Price Changes can and will happen if you are invested in the stock market either directly or through mutual funds, a 401k plan, HOLDR deals, or IRAs. They are a fact of life. The key is to not panic but to know you are in it for the long term. Over ten or twenty years, the stock market will go up even if there are some wild or dramatic fluctuations in the meantime. Seeing a large price drop, that is the worst time to take out or change your investment. When the price is low, you are buying stocks for a bargain price. When the price is high, that may be a good time to move funds into less volatile instruments such as bonds.

Risk Versus Return

The more risk you can tolerate in your investments, the more return you will receive if you time your investments correctly. But also the more likely there will be dramatic or large price changes. The price may swing high giving great returns or low giving poor or even negative returns. A good financial adviser will know better when to buy in and when to get out of high-risk stocks or mutual funds. That is why a good financial adviser is vitally important. If your risk tolerance is lower, you will not experience the wild ups and downs but you may not get as high of return on your investments. And very low risk investments, such as bonds, can even have negative returns once costs are considered. Discuss with your financial adviser your tolerance for risk versus your need for returns.

Buying Bargains and Selling Diamonds

You probably have a job that you are an expert at. You may have trained for years to learn what you know about your job, including some hard knocks and life experience. You can't expect to be an expert in buying and selling stocks, then. A financial adviser's job is to know better when to buy and when to sell. Yes, they make mistakes, too. But they by and large will know better than the average person when to buy and when to sell.

The key is to buy bargains and sell diamonds. When the market is down or a stock is down, that is often a buying opportunity. The stock market, when it gets down on a stock, really gets down on a stock. It is unbelievable the amount of emotion that plays into stock prices. So a stock could easily be lower than its value should be. That is the time to buy and your financial adviser is trained to spot those opportunities. And you want to sell the stocks when they are over-valued or overheated. Again, emotion plays a role in pumping up a stock price.

There are times you may want to buy a stock when it is going up and hitting new highs daily. This is in the case of a stock that is undervalued and has great upside potential that people are just starting to recognize. Again, a financial adviser can spot these stocks or mutual funds easier and better than you can because it is their job. Your job is to make the money; their job is to ensure your investment of that money is done right. Dramatic price swings can and will happen in the stock market with individual stocks, mutual funds, or retirement plans. But if you stick in it for the long haul, you will come out ahead in the end with a nice retirement portfolio.

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