5 HEALTHY WAYS TO MANAGE YOUR PORTFOLIO

In a perfect world, your investments would grow steadily over time, and you'd have exactly the amount of money you'll need when you retire. In reality, though, markets are volatile and are prone to sudden ups and downs. If you're investing for the long term, it's important not to panic in response to short-term losses and dips. In fact, these fluctuations can be an opportunity to get bargain prices on companies whose long-term prospects remain strong. Here are five healthy ways to manage your portfolio that will leave you feeling confident in your investing strategy and future success.

1. Diversification is still your best friend.

As a general rule, it's best to have a balanced portfolio with a mix of stocks, bonds, and other assets. A diversified portfolio can help protect you against the risk that one type of investment will fail. For example, bonds are generally less risky than stocks, but if the economy worsens, these assets' value can also fall. A portfolio with a mix of stocks and bonds will help mitigate this risk. Remember, though, that no investment strategy can guarantee a profit or protect against loss. Diversification works best as part of a long-term investment strategy. If you try to time the market and switch your asset mix depending on current conditions, you may be less diversified than you intended — and taking more risk than you realize.

2. Don't fixate on the stock price.

When the stock market is on a tear, it's easy to get excited about profits, but the same is true when stocks are falling. Resist the urge to obsess over the day-to-day price movements of your stocks. Instead, focus on their long-term potential. If you've chosen stocks that are well-positioned in a growing industry, you shouldn't be overly concerned about short-term price fluctuations. Just keep in mind that stocks are inherently riskier than other types of investments, so it's common for their values to fluctuate. If you're tempted to sell your stocks when they're falling, try to resist the urge. Keep in mind that the price of a stock might go down due to short-term factors that won't have any lasting impact on the company. If you sell, you may regret it if the stock rebounds soon after.

3. Stay the course, and don't abandon your strategy.

It's tempting to abandon your investment strategy when stocks fall and people talk about the next market crash. Resist this urge. You don't need to change anything if you have a long-term plan and a mix of stocks and other assets that are appropriate for your risk tolerance. Remember, though, that no investment strategy is infallible. If you see signs that your strategy is no longer working — if stocks in your industry are dropping, but your stocks are doing fine — it's time to re-evaluate. If you see red flags, such as rising interest rates or high inflation levels, it might be a sign that the economy is overheating, and a recession could be approaching. In this case, be careful not to abandon your strategy too soon, as it can take a while for these indicators to translate into a drop in the stock market.

4. Don't be afraid to rebalance

If your investments have grown more heavily in one asset class than you initially intended, it's a good idea to rebalance your portfolio. If you don't rebalance, you could run the risk of your portfolio being too aggressive, which could lead to early retirement. Rebalancing means you sell off some of your more successful investments and use the money to buy more of the underperforming ones. Make sure you do this at a time when the market is not in a downtrend. Rebalancing when stocks are falling can be dangerous because you're selling off stocks at a lower price.

5. Be alert for buying opportunities.

If stocks in your portfolio are falling, consider your asset allocation. If you have too much of your money in stocks, consider shifting some of it into less risky assets such as bonds. No rule says you have to let one asset class grow at the expense of the others. Remember, though, that no matter how many assets you own, you can't control their price fluctuations. You can only control how much you have in each one. If you're worried about a sudden drop in the stock market, it's best to be diversified. You don't want all your money tied up in stocks. You can ride out a downturn if you have a portion of your portfolio in less risky assets.

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