How to Protect Your Investments in a Volatile Year 2023

“Never lose money.” – Warren Buffet

How to Protect Your Investments ?

Secure your finances in a volatile year 2023 by diversifying investments, monitoring market trends. Learn How to Protect Your Investments in 2023.

It’s hard to argue that point with the 6th richest person in the world, who has an estimated net worth of $105 billion. He’s been making money hand-over-fist for over 60 years and has had only one losing year.

But what about the rest of us? What can the average investor do in 2023 to protect their investments, considering we’re likely facing a volatile, topsy-turvy year because of recessionary fears, inflation, rising interest rates, political upheaval, and more?

To help you hang onto your hard-earned capital, which you’ve invested in hopes of funding your retirement, saving for a home, or any other reason important to you, we offer you these five ways to protect your investments in 2023.

Make sure you’re diversified.

Simply put, diversifying your investments means not putting all your eggs in one basket. Unfortunately, as simple as that sounds, it can be hard to do because different financial experts have differing opinions on what a diversified portfolio looks like.

Buffet believes in the “90/10 rule:” invest 90% of your money in stock-based index mutual funds and 10% in individual value stocks that pay dividends.

Many others believe in the “60/40 rule:” put 60% of your investments in stocks and the other 40% in bonds.

The purpose of both of these rules is to minimize your risk while producing positive returns, even in a volatile market.

Both rules have merit. Younger investors may find the 90/10 rule more appealing because they have more time for their stock index funds to show positive returns. In comparison, those closer to retirement may be more comfortable with the 60/40 rule because it has proven to be less volatile. However, it typically provides lower overall investment returns than the 90/10 rule.

If you’re unsure what your diversification should look like, many financial websites have questionnaires to help you determine which path is best for you. A Certified Financial Planner may also be a good source of guidance.

Think long-term when it comes to the stock market.

Investing is a long-term proposition. History proves that.

In 2022, the S&P 500 doled out about a 17% loss. That means if you invested $100 at the beginning of 2022, you had about $83 at the end of the year.

But if you invested $100 in the S&P 500 at the beginning of 1900, you’d have about $8.8 million at the end of 2022, assuming you reinvested all your dividends. This is a return of over 9.7% per year.

The lesson here is that investing in the stock market should be viewed as a long-term strategy to grow your money. Bailing out during the bad years and then re-entering the market when it rebounds is a sure way to minimize your gains or even lose money.

Don’t sell based on short-term market movements.

Don’t watch or read the financial news every day.

“Bad news sells.”

No doubt you’ve heard that before. Just watch your local news, and you’ll see bad news is always the lead story followed by more bad news. Only occasionally will the broadcast end with a touching human interest story with a happy ending.

The same holds true for the financial news. Whether it be CNBC, the Wall Street Journal, MarketWatch, or any other financial news outlet, doom and gloom usually dominate the headlines.

Watching or reading the financial headlines in 2022 led many investors to act impulsively and bail out. Instead of losing money on paper, they lost real money from their investment accounts.

Should you check your portfolio occasionally and see what the market is doing? Absolutely. But a daily diet of bad news will lead you to make short-term decisions that negatively affect your wealth.

Consider working with a professional to protect and grow your investments.

When you have a bad toothache, you don’t get out a pair of pliers and pull the tooth yourself that’s causing you pain. Instead, you go to a dentist, have it examined, and pursue the treatment they recommend because they’re a trained professional.

Consider doing the same with your investments. Talk with a qualified investment advisor if you’re concerned about what the market did to your portfolio in 2022 and what may happen in the coming year.

If you don’t have one, seek out a Certified Financial Planner (CFP) or talk with an advisor at your brokerage. Fidelity, Schwab, E*Trade, and other brokers have advisors on staff to provide clients with guidance and will help you keep a level head when the market is moving up and down erratically.

Use common sense.

There are a lot of schemes and fraudsters who want nothing more than to take advantage of your fear of market volatility in 2023. Make sure you don’t fall victim to scams and con artists or chase the next shiny investment that catches your fancy.

  • Check the credentials of the advisor you’re working with. Make sure they’re licensed to sell securities and are in good standing with the regulators that monitor advisors’ activity and ethics. Check your advisor or potential advisor’s record at finra.org, the regulatory arm for investment advisors.
  • Invest in things you understand. For example, if you’ve been reading the headlines about cryptocurrency and the claims that you can get rich by investing in it, think twice before you invest. Do your homework first and make sure you fully understand crypto and the risk involved. The same goes for any company that you don’t know exactly what they do.
  • Be patient. Good things come to those who wait. Investing should never be a get-rich-quick proposition. It’s better to buy and hold and let the market rebound in 2023-2024 than sell off because of impatience or fear. If you can’t wait to show a profit, invest your money in a short-term money market or CD that provides a guaranteed return.

2023 will probably be another “fasten your seatbelt” kind of year. Follow the five steps above and remember that history has proven that those who stay the course will show a long-term profit.

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Bob P