With recent market events, you might be wondering if you should change your investment portfolio.

The SEC is concerned that some investors are making quick investment decisions without thinking about their long-term financial goals. This includes people who are looking for a bargain and people who are trying to hide their money.

We can’t give you a definite answer on how to best manage your investment portfolio during volatile markets, but we’re releasing this Investor Alert to provide you with the information you need to make an informed decision. Before you make any decision, consider these areas of importance:

1. Draw A Personal Financial Roadmap

Before making any investment decisions, have an honest look at your financial situation as a whole – especially if you have never made a financial plan before.

To be a successful investor, you need to first figure out your goals and how much risk you’re willing to take. You can do this on your own or with the help of a financial professional.

You can’t be sure that you will make money from your investments. If you educate yourself on the effects of saving and investing, and commit to a plan, you can establish financial security and enjoy the perks of being in control of your money.

2. Evaluate Your Comfort Zone In Taking On Risk

All investments involve some degree of risk. If you’re thinking about buying stocks, bonds, or mutual funds, it’s important to know that you could lose some or all of your money.

Deposits at FDIC-insured banks and NCUA-insured credit unions are typically federally insured, but the money you invest in securities usually is not. If you don’t carefully consider the risks involved in investing, you could end up losing the money you’ve invested—all of it. Purchasing your investments through a bank does not mean you are exempt from monitoring them.

The potential for a greater investment return is the reward for taking on risk.

If you are aiming to achieve a financial goal that is a long way off, you will probably make more money by investing in riskier assets such as stocks and bonds, rather than only investing in less risky assets such as cash equivalents.

Alternatively, investing only in cash investments may be more suitable for shorter-term financial goals. Individuals who invest in cash equivalents are mainly worried about inflation risk, which is the possibility that inflation will grow more quickly than returns on the investment.

3. Consider An Appropriate Mix Of Investments

The inclusion of different asset categories with investment returns that vary under different market conditions within a portfolio can help an investor to avoid major losses.

In the past, the financial returns from stocks, bonds, and cash have not all increased or decreased at the same time. When one asset category is doing well, it is often because market conditions are causing average or poor returns in another asset category.

Investing your money in multiple asset categories reduces the chances that you will lose all of it in any one category, and will make the overall returns on your investment portfolio more stable.

If the investment return for one asset category decreases, you will be able to make up for the losses in that category with a higher return in another asset category.

Asset allocation is important because it will have a big impact on whether you reach your financial goals. If you don’t take enough risk with your investments, you may not make enough money to reach your financial goals.

If you have a long-term goal, like retirement or college, you will probably need to have stocks or stock mutual funds in your portfolio, based on what most financial experts say.

Lifecycle Funds

Mutual fund companies have started offering a product called a “lifecycle fund” to accommodate investors who would prefer to use one investment to save for a particular goal, like retirement.

A lifecycle fund is a diversified mutual fund that automatically changes its investment mix to become more conservative as it approaches a particular year in the future, known as its “target date.”

An investor in a lifecycle fund would select a fund with the appropriate target date based on the individual’s investment goals. The managers of the fund decide how to allocate the assets, diversify them, and rebalance them.

You can identify a lifecycle fund by its name, which usually refers to the target date. Some funds are called “lifecycle” funds because they are designed to fit a particular stage in your life. For example, there are funds for people who are just starting to save for retirement, and there are also funds for people who are closer to retirement age.

4. Be Wary Of Investing Too Much Money In Your Employer’s Stock, Or In Any Individual Stock

Investing in a variety of different options can help to reduce the overall risk. Don’t put all your eggs in one basket.

If you carefully select the types of investments within each asset category, you can minimize your losses and make your investment returns more stable, without giving up too much potential profit.

If you invest a lot of money in your employer’s stock or any single stock, you could lose a lot of money. The stock might not do well or the company might go bankrupt and as a result, you could lose money and your job.

5. Create And Maintain An Emergency Fund

majority of savvy investors will have enough money in a savings account to cover an emergency, such as if they were to suddenly become unemployed. Many people save enough money so that they have six months of their income in savings. This way, they know that they will have the money they need when they need it.

6. Pay Off High Interest Credit Card Debt

Paying off high interest debt is the best investment strategy because it has a guaranteed return and is low risk.

If you have a high interest rate on your credit cards, it is best to pay off the balance as soon as possible.

7. Consider Dollar Cost Averaging

Investing a set amount of money at fixed intervals can help to mitigate the risk of investing all your money at the wrong time. This strategy is known as dollar cost averaging.

If you invest the same amount of money at regular intervals, you will buy more shares when the price is low and fewer shares when the price is high.

Individuals that typically make a lump-sum contribution to an individual retirement account either at the end of the calendar year or in early April may want to consider spreading out their investment over time, known as “dollar cost averaging,” especially in a volatile market.

8. Take Advantage Of “Free Money” From Employer

Many employers sponsor retirement plans in which they will match some or all of their employees’ contributions. If you are not contributing enough to get your employer’s maximum match on their retirement plan, you are missing out on free money for your retirement savings.

9. Time Horizon

The time horizon is the time frame in which you plan to hold the investment. The time frame in which you plan to invest your money can be short term, middle term, or long term, depending on your financial goals.

Short Term

An investment with a short-term time horizon is one that you plan to own for a year or less.

If you’re looking to invest in stocks for less than a year, you should put your money in established blue-chip stocks that pay dividends. The companies have strong financials and less risk.

Medium Term

A medium-term investment is an investment that you anticipate holding for a period of time ranging from one year to ten years. To generate moderate returns over the long term, stocks in quality emerging markets and those with moderate levels of risk are good investments.

Long Term

Long-term investments are typically held for more than 10 years. If something goes wrong, these investments have time to recover and can generate a significant return.

10. Check Fundamentals Before Buying A Stock

Investors should check fundamentals before buying a stock.

Famous investors like Warren Buffett compare the current market price of a stock to its fair market value to see if it is under or overvalued. If they believe it is undervalued, they will buy the stock. Heviews an undervalued stock as one that will reach its fair or intrinsic value.

Some Of The Most Important Ratios To Consider Before Buying A Stock:

Price-To-Earnings Ratio (P/E Ratio)

This ratio compares the stock’s price with the company’s earnings per share. For example, if a company is trading at Rs. 20 per share that produces EPS of Rs. Assuming that the company’s earnings remain the same, if its share price increases by $1 annually, then its P/E ratio will be 20, which means that the share price is 20 times the company’s earnings on an annual basis.

Debt To Equity Ratio

The debt-to-equity ratio is helpful in understanding how much debt the company has. Having high levels of debt is not good as it may indicate that a person is going to go bankrupt.

Price-To-Book-Value Ratio (P/B Ratio)

The stock’s price divided by the net value of assets owned by the company, divided by the number of outstanding shares, is the stock’s price-to-assets ratio.

11. Stock Performance Compared To Its Peers

Investors should also check how the stock has performed in comparison to its peers. Websites like StockEdge and Google finance help the companies to compare with their peers.

12. Shareholder Pattern

Investors should see how many shares are being held by institutions and promoters before buying a stock.

Promoters are the individuals or organizations that have a significant influence on a company. This means that they have a lot of power within the company, either through their ownership of the company or their high-ranking position.

Promoters, domestic institutions, and foreign investors should all heavily consider investing in companies with high holdings in each category.

13. Mutual Funds Holding

When a stock is selected by many professional investors to be part of their portfolios, it is generally seen as a safer investment than those stocks which are not selected.

14. Size Of The Company

The amount of risk you want to take on when buying a stock is greatly affected by the size of the company you are considering investing in. It is important to consider the company’s size in relation to your risk tolerance and time horizon.

The size of publicly traded companies can be determined by looking at the company’s market capitalization as shown below:

15. Dividend History

Dividend stocks are stocks that give a portion of their profits to their investors in the form of dividend payments. Investors who focus on income should look into investing in these dividend stocks.

If you’re looking to generate income from investments, one key metric to look at is a company’s dividend history.

The dividend yield is the percentage of a company’s current stock price that is being paid out as dividends to shareholders.

16. Revenue Growth

Investors should look at companies that are growing before buying a stock. This can be determined by comparing its revenue to its earnings.


17. Volatility

A stock’s volatility is how quickly its price rises and falls. A stock with high volatility will rise and fall quickly.

If you invest in a low-risk stock that doesn’t fluctuate much in price and the recent upward trend begins to reverse, then you can cash in on your profits before they disappear.

While stocks that move quickly can lead to profits, they can also reverse quickly and lead to losses if you’re not careful.


The Stock Market sees a steady influx of new investors every year. Influencers use social media to share their knowledge about how to make money consistently.

The youth today is more interested in the best ways to invest in the stock market and create wealth. Because of this, people who are new to trading often start without having a good understanding of what they’re doing.

You should only buy stock in the best companies to add to your portfolio. Stock screeners can help you find companies that match your investing or trading criteria.

About the Author Brian Richards

See Brian's Amazon Author Central profile at https://amazon.com/author/brianrichards

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