Staying on course and adhering to your investment plan

Once your portfolio is set up, it can be tempting to change portfolio allocation in response to market developments. Staying the course and adhering to your original investment plan can be difficult. When the market rises, people often want to increase the equity weighting and reduce it when the market falls. Investors who do this are essentially buying high and selling low.

Another frequent mistake investors make is to close positions because the markets seem to indicate a future dip in prices. Investors who do this run the risk of getting it wrong. Closing positions also means that you will have to manage the right time to reinvest, while remaining under-invested can reduce your long-term investment return.

Staying invested and adhering to your original investment plan will allow you to avoid missing out on periods of exceptional performance, which constitute an important part of the final long-term performance of your portfolio.

In other words, attempting to guess future market developments is risky. In most cases, a better approach is to stay invested and adhere to your original investment plan.

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