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Often, the hardest part of investing is the one we have the most control over – our emotions. Ups and downs in the market, as in life, are normal. It's your reaction to them that will make the difference in your strategy. Here are some common investing mistakes – and how you can avoid them.
Trying to time the market.
To time the market successfully, you have to know when to get out and when to get back in. Getting one right is tough. Getting both right? Nearly impossible. But, if you don't stay fully invested in the market, you may miss out on the best days.
Holding too much in cash.
Cash can serve a valuable role, providing for your spending needs as well as for emergencies. But holding too much in cash can come with risk – the risk of not having enough growth to meet your goals or offset inflation.
Letting fear influence your decisions can lead to buying at market peaks and selling at market bottoms. A better strategy is to have a broad asset allocation and remain diversified so you can better weather market gains and losses.
Focusing on the short term.
Don't measure your performance on day-to-day fluctuations. The stock market averages a 10% correction every year, and there have been 32 bear markets and 32 recoveries since 1900. Market declines are normal. The key is to remain focused on your long-term goal, not the bad news of the day.
The best way to avoid all of these?
When you start to feel an emotional reaction to the market, reach out to your financial advisor to review your goals. Your portfolio, and your future self, will thank you.