-
Step 1
Stay the course. Avoid overreacting to market fluctuations. If the stock market goes down, avoid panicking and selling off your investments. If you sell, you lose the chance to recoup the loss when the market goes back up. Historically, the stock market always rebounds.
-
Step 2
Diversify your investment portfolio. If you have your money in different investments, it will be safer. If your stocks go down, your bonds tend to do better. When the United States financial markets are suffering, European stocks may be up.
-
Step 3
Understand the risk level associated with certain investments. Revise your portfolio to match your level of risk tolerance. If you have many years left to invest, you can tolerate more risk. Short term market fluctuations have a chance to correct themselves with time. If you have a shorter investment period, choose less risky investments, such as bond funds or balanced funds.
-
Step 4
Choose safer investments. Mutual funds are safer than stocks. Index funds are safer than sector funds in general. Any savings type of account backed by the FDIC is safer than a stock or mutual fund investment.
-
Step 5
Invest in large mutual fund families with a longstanding history of solid performance and financial standing. American Funds has been around since the 1920s with solid performance. Consider T Rowe Price and Fidelity as well, for example. Look at past and current financial statements of the fund family.
-
Step 6
Invest in stocks and mutual funds with a proven track record of consistent performance. Look at the basic chart of the stock or fund. If you see a continuous upward slant rather than a series of jagged ups and downs, the performance is more consistent overall. (You can find such charts on a stock or mutual fund family's website.) Alternatively, check to see that the yearly returns are mostly positive as opposed to largely positive some years and greatly negative other years.
-
Step 7
Perform a check up of your investments annually, more often when the market is in trouble. Check each investment. Find out the financial strength of the fund family as well as the financial information for each individual fund. For stocks, make sure the company is healthy and not about to go bankrupt.
-
Step 8
Avoid sector funds, or if you have them, keep them a small part of your overall mix.
