Well-diversified portfolio is the key to investor confidence: CFP

by Chloe Adams
4 minutes read

Ferguson: Confidence bounced back, but it’s still in the caution zone

Recent bouts of market volatility haven’t done much to dim investor confidence, according to a new report.

After a year of wild market swings followed by the S&P 500 hitting fresh highs last week, nearly two-thirds of investors expect their portfolios to perform the same or better in the coming months, according to Fidelity Investments’ “State of the American Investor” study.

However, while newer investors are increasingly bullish, seasoned investors have a more pessimistic outlook and lower risk tolerance, likely from experiencing other periods of extreme market fluctuations, the report found.

Fidelity analyzed sentiment and behaviors of more than 2,000 adult “DIY investors,” or those who manage their own portfolios. The investors had at least $25,000 in investable assets outside of retirement and real estate.

New and more experienced investors should be asking themselves, “How much risk do I need to take? Your willingness to take risks is always going to be changing,” said Tim Maurer, a certified financial planner and the chief advisory officer at SignatureFD, based in Atlanta.

“We should always be calibrating,” he said.

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“Navigating shifting market conditions can be daunting,” said Josh Krugman, a senior vice president of brokerage at Fidelity Investments.

Although newer investors felt better about investing in nontraditional assets, such as crypto, investors with over a decade of experience are adopting a cautious approach for the year ahead while seeking out stable investments to accomplish their more conservative goals, Fidelity’s report also found. 

Focusing on the long term and adhering to a consistent investment strategy, along with a mix of investments, can help investors achieve better results over time, Krugman said. “That tends to help them get through the ups and downs of the market.”

Maintaining a well-diversified portfolio — including a mix of stocks and high-quality bonds, which have historically performed well during downturns — is key, other experts also say.

Exchange-traded funds or mutual funds, which are baskets of securities like stocks and bonds, “are easy vehicles to get a broad diversity of exposure to various asset classes,” Krugman said.

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‘You still need to look under the cover’

“ETFs are a fantastic innovation,” Maurer said.

“My caution is that just because something is an ETF, doesn’t mean it’s a great investment,” he added. “It’s the wrapper around the investment, rather than an investment itself — you still need to look under the cover.”

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