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Seek balance when investing

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Brenda EcheverriaStocks have historically had the greatest risk as well as the highest returns among the three major asset categories (equities, fixed-income, and cash equivalents). Stocks are a portfolio’s “heavy hitter,” offering the greatest potential for growth. The volatility of stocks makes them a risky investment in the short term. But investors who have been willing to ride out the volatile returns of stocks over long periods of time generally have been rewarded with strong positive returns. A long-term investment strategy offers a balanced approach to both risk and reward.

Best practices associated with long-term investment strategy often include the following:

  • Spread out your risk. Diversifying, or putting your money in different types of investments, has long been recognized as an effective way to manage your risk. In theory, when certain types of investments are declining in value, other types are gaining value. A well-diversified portfolio can lessen the impact of market volatility.
  • Save early and save more. Contribute as much as you can to your savings plans as early as possible to get the full benefit of compound interest. Compounding happens when earnings on your investments are reinvested in your account. The reinvested earnings may also have earnings, and then those earnings are reinvested and so on.
  • Put investments on auto pilot. If stock volatility creates a lot of stress for you, Target Retirement Funds may be a good option. Target Retirement Funds are a one-decision investment designed to build assets with minimal personal oversight. These funds automatically identify and maintain an age-appropriate asset allocation throughout your investing years—so you won’t have to think about it until you’re ready to make withdrawals in retirement.

Target retirement funds invest in a mix of stock and bond funds that steadily become more conservative as they approach their target date. The principal value of a target retirement fund is not guaranteed and may gain or lose value now and after its target date.

Brenda Echeverria, Financial Planner