The right investment strategy is one that combines your goals, time horizon and risk tolerance. It should also incorporate the principles of diversification and asset allocation. The specific strategies and practices can vary from person to person depending on their situation, assets and family obligations. However, many strategies and practices are tried and true and can be applied to a wide variety of investors.
A good strategy can help you stick to your plan, even in volatile markets and avoid costly mistakes. It can also keep you on track toward your financial goals. In a recent Bankrate survey, 22 percent of respondents said their biggest financial regret was not saving enough for retirement.
Keeping your plan on target requires discipline and regular rebalancing. Rebalancing means buying and selling assets as necessary to bring your portfolio back in line with its intended mix. It may mean selling shares of a stock when it is overvalued and purchasing more when they are undervalued. It also means sticking to your plan in the face of volatility, even if you decide not to invest during a market downturn.
Having the right investment strategy can make all the difference in your long-term success. When the markets decline, remember that your long-term investment time horizon is decades away, and what happens this week or next month may not affect your returns over the years. Investors who practice dollar-cost averaging or rebalancing can take advantage of this fact by spreading out their purchases, so they buy more shares when the prices are low and less when the prices are high.