There are some investment strategies that may help you lessen the shock of a fluctuating portfolio and attain your investment objectives. The golden rule is to not stray from your investor profile. Your profile takes into account many factors-including your tolerance for risk, investment horizon and savings objectives-and opens the way for an optimal potential return based on your personal situation. Given that risk and return are closely related, you should expect the value of your portfolio to vary more if you target high returns. Periods of high volatility make many investors conclude that their tolerance for risk is not what they might have thought. Some decide to sit down with an advisor to see whether their investor profile should be more conservative.
Another important rule: think long term and never let your emotions take control of your portfolio. Even if markets may gyrate wildly, their long-term movement tends to be positive. Investors who act in the heat of the moment and get out of the market during a highly volatile phase eliminate the possibility of taking advantage of any potential market rebounds. As a result, they miss out on potentially high returns.
In conclusion, when markets are down, you must keep a cool head and not try to time the market at all costs, following the crowds of investors who are cashing out their investments. A Victor Hugo quote perfectly depicts this attitude: "In moments of panic, I'm only afraid of those who are afraid." The best way to have the odds on your side is to maintain a well-diversified portfolio (we will be covering this idea in the weeks to come) and meet with your advisor once a year to review your retirement plan. Then you will be able to sleep like a baby!