Some of these can be controlled while others cannot – knowing the difference and what to do about these is a crucial step in crafting your investment strategy.
Power of compounding
Once you invest, you can earn interest, and after that you earn interest both on your investment and on the interest it has already earned... the balance in your account continues to grow steadily, and the longer it has a chance to grow, the better. If left in the market to grow over time, thousands of dollars could potentially grow to Millions!
Management of Investment Risk
Every investment carries risks and it would be impossible to avoid risks totally. Before you invest, you must understand the possible downside and be prepared for the risks that you may face.
Now back to the basics. The most effective way of weathering the effects of market volatility is by spreading your principal among a number of different types of investments, or asset classes, including stocks, bonds and cash. This process, known as asset allocation, is based on the fact that most asset classes not only produce positive returns in different ways, but do so at different times. A well-diversified asset allocation usually provides exposure to areas of various potential returns, thus helping to mitigate the effects of volatility in any one area.