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Taking your emotions out of your investments

Investors who display rational behavior see more consistent profit


Economic and political influences are ever-present and will undoubtedly continue to create market risks. We must remain watchful; heightened instability both domestically and abroad may require adjustments to portfolio asset allocations. However, we must also be diligent in our efforts to make sound, thoughtful investment decisions. Ultimately, the health of an investment portfolio depends on one’s ability to take reactionary decision-making out of investing.

We all have natural tendencies that can lead to mistakes, however, investors who display rational behavior and make objective and competent judgment calls are more likely to consistently profit from their decisions.

Here are some tips to help keep you on the right track:

Assess your risk tolerance. In general, investing means you will assume some level of risk, but taking on unnecessary risk is often avoidable. One strategy to balance risk is to diversify your portfolio so that if one investment loses money, other investments may be able to compensate for those losses. Ultimately, it is up to you to decide how much risk you are willing to take.

Keep calm and tune out the noise. As major market movers are covered in the media, it is common for the stock market to react swiftly. This is the time to remember not to get distracted by the noise. True economic changes often take time to play out in the wake of crisis events. Avoid making kneejerk changes to your portfolio and remember to re-evaluate your overall allocation. Keep the bigger picture in mind, and evaluate your allocations from a long-term perspective.

Risk management for your portfolio. Investors should have a discussion with their financial advisor to determine whether their portfolio is positioned to mitigate heightened risks. Where appropriate, to potentially lower volatility you might want to consider alternative investments in your portfolio during periods of instability. Avoid the temptation to "time" the markets. Rather, adopt an asset allocation which is consistent with your need for return and risk.

Cope with the uncertainty. Domestic and global events can certainly affect the stock market. However, it’s important to remember that throughout history, the U.S. stock market has proven to be quite resilient over the long term, bouncing back time and time again from the impact of world crises.

There’s no doubt challenging times will continue. That’s why keen attention to market trends both at home and abroad are key to constructing a solid investment portfolio. Surviving market volatility is possible, but it requires a steadfast plan. 

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Todd Hauer

Todd Hauer is a Financial Advisor with the Global Wealth Management Division of Morgan Stanley Smith Barney in the Denver Tech Center. He can be reached at 720-488-2406 or toll free at 1-800-347-5099, or you can email him at Todd.Hauer@morganstanleysmithbarney.com.

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