The Fragreport

After a decade of reaping the benefits of a bull market in U.S. stocks, today’s investors face a volatile market—and proper positioning of your portfolio in the face of mixed economic signals has become increasingly important.

Asset allocation is to investment planning what the foundation is to a house or the chassis is to a car. It’s what everything else is built upon. Asset allocation is to investment planning what the foundation is to a house or the chassis is to a car. It’s what everything else is built upon. And just as important as constructing a house on a firm foundation, having the right asset allocation can be vital to helping you work toward your financial goals.

Whether you’re already investing or are just thinking about it, you should understand risk and the role it can play in a portfolio. And although it may seem simple enough on the surface, risk can be one of the most difficult concepts to grasp – especially for new investors.

When you look at a line chart of an investment’s historical performance, one feature to note is its volatility – how frequent and how extreme the ups and downs have been. This is significant because volatility is the most commonly used measurement of an investment’s risk. The greater the volatility, the riskier the investment is considered to be.

Market volatility, painful as it can be, can actually provide an important lesson for investors about why it’s important to stick to the fundamentals, such as having an asset allocation strategy and regularly reviewing your plan. With that in mind, here are suggestions for these turbulent times that may help you turn today’s worries into tomorrow’s good habits.

For most investors, the key to success is simple: Buy low and sell high. But how often have you seen this scenario played out? When the market is up, an investor feels good and buys stocks. When the market is down, that same investor gets scared and sells.