The start of the year for the stock markets has not been kind for most investors and what should you do? sell everything? The headline went around the world and there is truth in what it says. Ideally, if you sold everything you would be in cash and could capitalize on opportunities as they arose or at the very least your portfolio would not lose anymore money. According to Tom Bradley President of Steadyhand Investment Funds Inc. and others the toughest decision is Just when and how will you get back in if you sell everything?
Part of the problem is if you have a negative attitude, there is no perfect time to buy. The headlines in the newspaper will only report after it has already happened. If you are out, it is very hard to get back in because you see all the reasons not to be in; you will not see the opportunities to be found.
At the moment with interest rates being low, thinking long term it will take years before your money doubles based on the compound interest rates. When you are out of the market, you will begin to look for perfect answers and with the stock market the only perfect answer is what has happened. You need to begin to think about being approximately correct, not perfect.
The secret is to ensure your investments are in the best quality investments as possible. Start with companies that make profits and can pay dividends even as their share price falls – this is the buying opportunity. When the market goes back to what is considered normal, these are the shares that will rise first.
The method to go through the stock market ups and downs is to have a diversified portfolio that will allow you to keep your head above water and can see opportunity. This means money in the market, cash, bonds, and medium and large companies. Try to stick to profitable companies and remember most of the money is made when good assets return to their normal prices.
Linking to dividend paying stocks, if you have a reinvestment program this is when you can build wealth by buying more quality companies which are profitable and the price has fallen. When the market goes up for all the good things the economy is doing, the stocks which rise first is the quality ones. Try to stick to them and you will be more at ease when the markets go up and down.
There are more questions than answers, till the next time – to raising questions.