How to Deal with the Up’s & Down’s of the Stock Market
The stock market is a great tool for building wealth. However, your portfolio is not going to appreciate in value in a linear fashion. Instead, there will be periods of extended gains and periods of extended losses. The key to long-term success in the stock market is to keep your emotions in check. Let’s look at some strategies that can help you make objective investing decisions.
Don’t Worry About Short-Term Results
It isn’t uncommon for the market to rise or fall by 1 percent or more in a given day. This is true regardless of whether the market has trended up or down over previous days, weeks or months. When the market does make a short-term move, it is more important to understand why the move happened and how you can use it to your advantage.
Diversification Can Create Stability
It is rarely a good idea to put all of your money into one stock or one sector of the economy. Instead, you want to put a little bit of money in as many companies and sectors as possible. This can be done by picking stocks yourself or by investing in a mutual fund or ETF. These products offer exposure to a variety of companies or sectors in a single investment. Depending on your investment strategy, it can be a good idea to invest in a variety of mutual funds or ETFs. When you diversify, you offset losses in some sectors with gains in others.
Have a Robot Manage Your Portfolio
Automated investment services will create, oversee and manage your portfolio based on your risk tolerance and other variables. All you need to do is deposit funds and the process will get started. While you have the ability to buy and sell on your own at any time, the portfolios offered are designed to match or exceed the broader market. Since an algorithm is making decisions for you, there is less risk of making irrational decisions based on temporary market moves.
Understand That the Stock Market Generally Has Consistent Returns
The stock market tends to return about 7 percent per year. That number increases to about 10 percent if you have dividend stocks. Therefore, you should feel confident that you are going to make money if you stay the course over a period of several years and decades. To increase returns, take advantage of 401(k) employer matches. That represents a 100 percent return on your capital, which is much higher than you will see anywhere else.
Know Your Risk Profile
If you truly can’t stand the sight of losing your money, invest in bonds and index funds. They tend to be more conservative in nature, and bonds are great for those who are close to retirement. You can also sleep easier at night when you use money that you can afford to lose. Depending on how large a return you may be aiming for, you might need to take risks such as taking out a vehicle title loan or payday loan for investment purposes.
The stock market is going to go up and down for as long as it exists. While you do run the risk of losing money, the risk is reduced by diversifying your portfolio. It can also be reduced by investing for the long-term as opposed to making an attempt to get rich quick.
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