2. Use volatility to your advantage.
Buy low, sell high is the wise investor’s mantra, but it can be easier said than done. Over time, rebalancing generally does it for you automatically: By definition, rebalancing means selling off some very high-performing stocks and investing more in stocks that show more opportunity. “In essence, you are selling high and buying low,” Haverland says. “You’re treating volatility as an opportunity as opposed to a threat, and over time, history tells us that’s usually been the best thing to do.”
3. Avoid emotion-based decisions.
When headlines scream about a market plunge, it can be tempting to make a rash decision to sell. “It’s hard not to let the emotion of a shrinking 401(k) balance push you to deviate from your plan,” Haverland says. Doing so, however, could mean selling at the worst possible time.
Regular portfolio maintenance and periodic rebalancing take the emotion out of the process, preventing investors from making this simple mistake. “You’ve chosen to invest for the long term, to build a plan that’s designed to reach your goals,” Haverland says. And remember: The S&P 500 has averaged better than a 10% annualized return in the 30-plus years since Black Monday (October 19, 1987).1
4. Adjust for changes in your life.
Quarterly reviews of your portfolio can be especially important when life events shift your perspective. Retirement (or nearing it), sending a last child off to college, buying a vacation home, or selling your business could impact how you want to invest going forward. Be sure to take a fresh look at your goals during your portfolio checkup, and review whether your investment goals, time horizon, and risk tolerance may be evolving.
“Think about where things stand in your life,” Haverland says. “Then adjust your long-term plan as necessary to support your investment goals.”