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10 Sensible Stock Market Strategies After A Fall

The start to 2016 was one of the worst in history for stock market investors as the Standard & Poor's (S&P) 500 registered a record-breaking plunge in January. Some prognosticators are predicting doom and gloom for the rest of the year and a bear market.  They say the market downturn might even lead to a recession.

But experienced investors know not to panic.  While it's important to keep abreast of the S&P 500 and other key indicators, it's equally essential—if not more so—to stick to investment principles that have guided you successfully in the past. Consider these 10 practical suggestions:

1.  Have a game plan.  Assuming you have lofty long-term objectives—a comfortable retirement, say, or buying a second home—make sure you map out a plan to get there.  Focus on how much you need to set aside and invest annually, and if you're saving for retirement, factor in future withdrawals.  Also keep in mind some of the advice below.

2.  Balance risk with reward.  While your investment plan should be designed to make money over time, it's important to consider the risks that could disrupt your path to profits.  Ideally, your investment strategies should maximize your rate of return while minimizing the risks—and how much risk you're willing to accept will depend on many factors that may relate to you alone.

3.  Play with "house money."  With any investment, losses are possible, and you'll need to consider what you can afford to lose, and when.  While the stock market, historically, always has made money over the long haul, there have also been steep dips along the way, and that could hurt if you're counting on the money you lose.  Try not to invest amounts earmarked for paying your mortgage, sending your kids to college, and other necessities.

4.  Diversify.  Spreading your money across several kinds of investments is essential to most investment plans.  Including a variety of stocks from across sectors or industries, as well as a diverse mix of bonds and cash equivalents in your portfolio, can help when one type of investment rises while others fall.  Putting money into mutual funds or exchange-traded funds (ETFs) indexed to market benchmarks can be a simple way to diversify.

5.  Avoid market timing.  Getting in and out of stocks quickly tends to be a loser's game.  If you're lucky you might see short-term benefits but over longer periods it's impossible to outguess financial markets.

6.  Don't forget about taxes.  When you examine your investments, you may tend to focus on returns to the exclusion of practically everything else.  But taxes also can have a major impact.  Adding tax-exempt municipal bonds to your portfolio, for example, could improve your overall after-tax returns, and it makes sense to look for ways to offset capital gains with capital losses before the end of the year.

7.  Review and rebalance.  Regardless of how the stock market is performing today, it's important to look at your portfolio periodically and make whatever adjustments are necessary to stick to your long-term plan.  Suppose you want to keep a hypothetical asset allocation of 50% in stocks, 25% in bonds, and 25% in other investments.  If stock prices fall and your allocation drops to 35%, you may need to sell bonds and buy stocks to get things back in line.  That also has the potential advantage of adding to your stocks when prices are low.

8.  Try to keep your emotions out of it.  It's easy to be swept up when the market is climbing or falling, but you'll be much better off if you're able to remain calm.  Resisting impulse acquisitions and sales tends to be a winning long-term strategy.

9.  Stick with your plan.  It's not enough to develop an overall investment plan—you also need to follow it even when you face market turbulence—in other words, don't abandon the stock market just because you're experiencing some negative returns.  Staying the course over the long term is likely to give you the best results.

10.  Obtain professional assistance.  Last, but not least, you don't have to go it alone.  Your professional investment advisors can help you weather the inevitable ups and downs of the stock market.  Don't hesitate to contact us at any time.

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