The first quarter of 2009 has tested the lows of indices and given a possible glimmer of hope for a potential recovery. As an investor you may be left wondering how you can take some control over your portfolio to manage risk and position assets accordingly for a potential recovery? Listed below are a few points you may consider to position your portfolio for the remainder of 2009.
For those with traditional IRAs, you may wonder if you should continue to contribute in 2009 or wait till the market becomes a bit steadier. Traditional IRAs are a good way to make contributions for your retirement while possibly receiving a deduction against your taxable income*. For 2009 an individual may make a $5,000 contribution ($6,000 if 50 or over). Additionally, making a contribution to a traditional IRA while the market is low translates to greater returns in a market recovery than shares you purchased when the market was higher. So yes, today (and tomorrow) are good times to make a contribution to your IRA, not only for the tax benefit, but also for the potential for higher returns in a bull (up) market.
Dollar Cost Averaging
Expanding on the idea above, dollar cost averaging is the concept of making regular contributions to an investment regardless of the market price. This practice results in an average cost per share below the average market price per share.
In the context of today's volatile markets, continuing to make contributions to your IRAs, 401ks, is a key element of a sound investment strategy.
Another benefit to dollar cost averaging is its disciplined approach to investing that helps take some of the emotion out of deciding when to buy. Emotional investing often leads to purchasing shares when the market is high or selling when the market is low. Dollar cost averaging helps investors become disciplined and not react to swings in the market, thus avoiding the emotional trap.
Rebalancing is the process used to check your asset allocations to ensure they are within the boundaries set for your risk tolerance and investment goals. Rebalancing helps to ensure your portfolio hasn't "drifted" too aggressive or too conservative because of movement in the market. Maintaining a proper asset allocation ensures you maintain a proper level of risk exposure.
It is likely that most investors have seen the equity portion of their portfolio diminish over the last year, so now is a good time to rebalance to ensure the portfolio is aligned with your objectives.
Rebalancing regularly creates discipline to purchase investments that are low in relative price by using proceeds from the investments that are high in relative price. This process of rebalancing maintains risk tolerance and prepares the portfolio for future appreciation by maintaining proper allocation in preparation for a bull (up) market.
We Can Help
We recognize that 2008 was a difficult year for investors to maintain discipline in their investment strategies, but hopefully we have touched on a few techniques to help make the process a little more understandable. As an Optimum Customer of Canandaigua National Bank & Trust, you have access to a Personal Banker who is knowledgeable in these techniques and many others. In addition, the Personal Bankers are Registered Representatives who are available to manage your portfolio if you feel you would benefit from professional management of your assets.
*Income Limitations Apply.
Investments are: Not FDIC Insured, May lose value, Not a deposit, No Bank Guarantee, Not insured By Any Federal Government Agency.
Investments are not bank deposits, are not obligations of, or guaranteed by Canandaigua National Bank & Trust, and are not FDIC insured. Investments are subject to investment risks, including possible loss of principal amount invested.