1.) Have a long-term plan
Your investments should be diversified among stocks, bonds, and cash. Stocks in the hope of maximizing long-term returns. Bonds as a safe bet. And a stash of cash in case of emergencies.
One useful rule of thumb is that the percentage of your portfolio allocated to bonds and cash should equal your age.
2.) Don’t sabotage your plan
Try not to follow the herd if doomsday seems just round the corner. It isn’t.
You have to stay in the market, as stocks usually do incredibly well when things look bleak.
3.) Rebalance methodically
It might seem strange to sell stocks when they’re moving higher, but if you decide to regularly rebalance your assets – selling those that are doing well and buying those that aren’t – it takes the emotion out and forces you to sell high and buy low. Doing this yearly is a good idea.
4.) Keep a cash cushion
A good guideline is to have enough cash on hand to cover six months of living expenses if you’re working and one to two years if you’re a retiree.
5.) Seek the safety of dividends
Many companies pay dividends that are more attractive than the 2 percent yield you’ll get on 10-year Treasury bonds. Look for “defensive stocks” in companies that sell products that people need when there’s a recession – pharmaceuticals, consumer staples, utilities.
Our thanks to Consumer Reports Magazine.