If you want to reach your financial goals, you need an investment strategy you can rely on to get you through tough times while making the most of the long-term growth opportunities in the financial markets. Too often, though, people get stuck with an investment strategy that doesn't work the way they want it to, yet they don't know what to do to fix it.
Fortunately, addressing problems with the strategies you use to select stocks, bonds, and other investments doesn't have to be complicated. Here are a few ideas on what to do if you face some common problems with your investing.
Problem 1: Your returns are falling short of the market. One of the most common complaints comes from investors who find that their portfolio returns don't match up to the overall market. There's nothing more frustrating than seeing stock markets rise to record highs day in and day out, only to see your own investments lag behind.
There are two ways you can address this issue. One is simply to recognize that with many investments, expecting perfect correlation with market returns is unreasonable. For instance, many niche investment products deal with completely different markets than those that the most popular benchmarks track, and so the entire reason for choosing those products is to avoid perfectly matching the broader market.
But if you want to match the market, tailor your investment strategy to use market-tracking ETFs. For instance, the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA), colloquially known as the Diamonds, tracks the popular Dow average. The popular Spiders, officially called the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), moves nearly in lockstep with the S&P 500. You won't get exactly the performance of the indexes, as ETFs have fees involved that will detract somewhat from total returns. But with ETF fees being relatively low, the amount you lose to those costs is much less than you'd pay with an actively managed mutual fund.
Problem 2: Your portfolio seems too risky. After a pullback like we've seen over the past couple of days, it's common to discover that your portfolio seems to have more risk than you thought. While making a knee-jerk emotional response to steep losses is never a good idea, sometimes the only way to get a true read on the risk level in your investment strategy is to go through an actual correction.