Investors often wonder about the right timing to adjust their investment portfolios, particularly during periods of market volatility. Experts caution against making hasty changes based on market conditions, as history has shown that such knee-jerk reactions may not yield favorable outcomes. Tony Molina, a senior product specialist at Wealthfront, emphasizes that impulsive portfolio adjustments usually do not align with successful investing strategies.
While market downturns may trigger the urge to tinker with investments, experts advise maintaining a long-term perspective and staying invested through market fluctuations. The ups and downs are part of the investing journey, and remaining steadfast during turbulent times can lead to long-term growth, especially when investing in index funds and exchange-traded funds (ETFs).
However, there are instances when adjusting one’s investment portfolio is warranted. Ivory Johnson, founder of Delancey Wealth Management, suggests that changes may be necessary if there are shifts in your investment goals’ time horizons, impacting your risk tolerance. For instance, extending or shortening the timeline until retirement can influence the level of risk you are willing to take with your investments.
In such situations, using robo-advisors can be a practical solution to ensure that your portfolio aligns with your risk profile. Robo-advisors utilize questionnaires to determine the best asset allocation based on your goals and automatically rebalance your portfolio as needed. Platforms like Betterment and SoFi Invest offer these services, making it easier for investors to maintain a suitable investment strategy without constant monitoring.
Johnson suggests that significant life events, such as severe illness or windfalls like inheritances, may necessitate adjustments to your investment allocation. These events can alter your need for capital appreciation, prompting a reassessment of your risk exposure. Similarly, Molina points out that life milestones like marriage, emergencies, or nearing retirement could prompt investors to reconsider their risk levels and liquidity needs.
When considering individual stock investments, it is crucial to assess your comfort level with tying up funds for an extended period, typically at least five years. While long-term holding is generally recommended for individual stocks, selling a losing position may be prudent if the risk outweighs potential returns significantly. Diversifying through index funds and ETFs can help mitigate risk and enhance portfolio stability.
Overall, the consensus among experts is that adjusting investments should be approached cautiously, with a focus on long-term growth. Exceptions to this approach include changes in time horizons and risk tolerance, as well as major life events that may warrant a reassessment of investment strategies. By staying informed and aligning investment decisions with personal circumstances, investors can navigate market uncertainties more effectively.
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