REDUCING PORTFOLIO VOLATILITY
Growth and technology investments should, of course, only be a set percentage of the average investors portfolio. If determined a proper fit for your needs, you can still be fully invested in stocks, but in a prudent and more conservative way.
Some stocks are less volatile than growth and technology stocks. For instance:
- Investors can utilize stocks that pay dividends, thus earning part of their rewards through income rather than rising stock prices.
- Several kinds of mutual funds try to take a less risky approach. These include balance funds and asset allocation funds that invest in a mix of stocks and bonds or cash investments. Value funds look for out-of-favor stocks or "less expensive" stocks that may suffer less in market downturns.
In spite of market volatility, stocks should continue to play an important part in your long-term investing strategy. Historically, the equity market has offered the best potential for gains. Realize, too, that avoiding stocks wont insulate you from volatility. For instance, bonds did poorly in 1999 after performing well in 1998. Of course there are CDs, some of which are paying close to 7% these days. CDs and other cash instruments may be appropriate for a portion of your portfolio and for shorter term financial needs. But for the long haul, a diversified portfolio of equity investments is likely appropriate and desirable for most investors.
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