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Written by Eric PowellFinancial Advisor at RightPlan Financial

How to move away from predicting the unpredictable and start preparing your finances for the long term now. 

With recent market volatility, many people get spooked and become eager to get out of the stock market. However, placing those funds in cash or withdrawing them and putting it under your pillow doesn’t come without risk. Sure, there is the risk of an unwanted break-in with placing the cash under the pillow. But an even greater risk? Cash doesn’t keep up with inflation and it doesn’t have the upside potential of being invested in the stock market.

With the recession still looming in the minds of many, the fear of a drop in the market continues. Some people think record highs are the time to exit the market. If that were the case, you should have exited on March 5, 2013 when the Dow reached a record high of 14,253.77 (thebalance.com). It sounds good to sell high and we have all heard the cliché saying, “buy low and sell high.”

However, the crystal ball question is this: when is the market high?

A sale in March of 2013 could have cost you a significant amount of money based on where the market has taken us since then.

Nobody likes to see their money go down, but fluctuations–and even corrections–are more common than many may believe. There have been 22 times where the market went into correction territory since 1974. Of those 22, only four turned into a bear market (gradientinvestments.com). So, perhaps, attempting to time the market isn’t the best route to take in order to properly prepare your finances and make money for the long term.

So, here are six steps that will help you avoid paying the cost of market timing.

  1. Be sure to have your portfolio adjusted for your risk tolerance. If you are conservative and in a 100% stock portfolio, it will be harder to ride market fluctuations.
  2. Have a financial plan that prepares you for the ups and downs of the market. A Monte Carlo analysis with your plan will provide you with a projected need of return to meet your goals.
  3. Invest for the long term. Whether you are just starting or in your retirement years, the money you have invested should be a long-term approach.
  4. Be diversified. Investing in one stock or in one sector will be more volatile than having your assets allocated properly.
  5. Avoid the 24/7 market reports. The daily market talk does not do well for your emotions. A swing up or down could push you to deter from your long-term plan.
  6. Work with an investment advisor who communicates with you. The hardest part about investing is being in the dark. An advisor should educate and counsel you with your investments.   
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