Learn more about these 6 keys to better investing:
- Take advantage of the effect of compound interest
- Use dollar cost averaging
- Invest for the long term
- Consider your risk tolerance level
- Benefit from diversification and strategic asset allocation
- Check and rebalance your portfolio regularly
An Ameriprise financial advisor can help you implement and balance these and other investment strategies as you work toward your long-term financial goals and manage short-term market changes.
1. Take advantage of the effect of compound interest
As your investments earn interest, you will earn interest on your interest over time as you reinvest that income. This is the core idea of compound growth. Without any extra effort on your part, compound interest and time work together to potentially increase your return on your investment.
If you start saving early, you will benefit from the effects of interest accrual on your investments over a longer period of time. This has the potential to increase your overall returns.
How compounding can help increase returns
Based on an initial investment of $10,000 and a compound annual growth rate of 7%*
*This illustration is hypothetical and intended to show the effects of compound interest. It is not intended to represent past or future returns on any specific investment or investment strategy, or to imply guaranteed income. This illustration does not reflect sales charges or other expenses that may be necessary for some investments.
2. Use dollar cost averaging
Sticking to the discipline of dollar costing can help you avoid making emotional decisions based on market turbulence. With dollar cost averaging, you invest a certain amount periodically, regardless of what the market does. By always investing the same dollar amount each month or other chosen period, you will naturally buy fewer shares when the market is high and more shares when the market is low.
This illustration is hypothetical and is not intended to represent a specific investment or imply a guaranteed return.Average dollar cost {Imagine you have $1,000 per month to invest in a certain stock. By investing the same dollar amount on a regular basis, you can lower your average cost per share. stocks and help reduce risk by trying to time the market.}
3. Invest for the long term
It can be tempting to try to time the market - buying and selling investments based on what you think the market will do in the future - but you risk losing a lot of money over time. During volatility, the market's worst days are often closely followed by some very good days. When you pull money out of the market during a recession, you may miss the subsequent rise and recovery in prices.
Time is on the investor's side, and a buy-and-hold strategy tends to deliver better long-term results.
An Ameriprise financial advisor can help you create a personalized investment plan that considers both inflation and your long-term goals so you can retire with more confidence.
4. Consider your risk tolerance level
What are your goals with investing? Do you enjoy losing money when the stock market does poorly, or do you get nervous about any kind of investment loss? These are the types of questions you should think about and discuss with an Ameriprise financial advisor to help determine your risk tolerance.
Investors who have more time to recoup market losses may be more comfortable taking risks. However, if you are nearing retirement or have already retired, you may want to adjust your risk tolerance to ensure your investments align with your goals.
Once you determine how much risk you are willing to accept and your investment horizon, your Ameriprise advisor can help you allocate assets and diversify your portfolio accordingly.
Take the risk tolerance quiz to find out your own risk tolerance level.
5. Take advantage of diversification and strategic asset allocation
Diversification refers to the mix of investments in your portfolio, such as stocks, bonds, alternative investments and cash, with the aim of helping to reduce risk. By including different types of investments, you reduce your dependence on the performance of any one investment. Consider the saying, "Don't put all your eggs in one basket."
Asset allocation means being systematic about the amount you invest in each asset class. It is the nature of markets that different asset classes respond differently to changes in the market; while one class performs poorly, the other is likely to perform better. The right asset allocation strategy takes into account your objectives, risk tolerance, time horizon and tax sensitivity.
6. Check and rebalance your portfolio regularly
Over time, the investments in your portfolio will grow at different rates. As a result, your diversification and asset allocation can become unbalanced. Add in any changes in your income, risk tolerance or family situation and your investments may no longer reflect your goals. An annual portfolio review with your Ameriprise financial advisor allows you to refine and rebalance your portfolio so you stay on track to achieve your financial goals.
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These investing principles can help you put your money to work for you. An Ameriprise financial advisor will listen to your concerns, learn what matters most to you, and provide personalized recommendations for a diversified portfolio of solutions to help you stay on track in all types of market conditions.
