Sir John Templeton once said, “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Investors must bear this in mind as they move through these challenging times. From a global panic to widespread civil unrest, men and women around the world are wondering what the future holds and if they need to change their investment strategy. This quote goes to show that now is not the time to sell but to buy. What should investors know at this time?
Individuals who plan on investing in the long term, ten or twenty years, don’t concern themselves with market fluctuations in the short term. They believe the market will stabilize and rise in the coming years. Putting a lump sum into the market positions you for a good return when the market rebounds. In fact, this remains the most successful investment strategy on average. However, there are risks associated with selecting this option.
In the short term, the market could drop significantly. Investors have seen this repeatedly in the past few months. The markets would rise one day on positive news and drop significantly the next when unemployment figures came out or something of that nature. This is why lump sum investing remains best for those who plan on staying in the market for an extended period of time. Research consistently shows the time spent in the market is more important than when the investor put his funds into the investments.
Investors who choose to make use of this strategy need to be prepared to ride out the ups and downs of the market. If this becomes difficult, it’s best to avoid looking at stock market returns regularly. Check the market once a month to see if changes need to be made to the overall investment strategy and avoid watching it day to day. Work with a financial advisor and allow him to monitor the investments. He can then make recommendations when changes to the overall strategy are needed, as he monitors the market daily but isn’t emotionally invested and can remain objective when it comes to your portfolio. Learn more over at NRIA today.
Some investors find they don’t have the money to take advantage of lump-sum investing. Others find this strategy won’t work for their needs, as they aren’t planning to stay in the market long enough to benefit. For certain investors, the thought of investing a large sum of money in the market at one time is simply too emotionally taxing because the idea of doing so terrifies them. Regardless of which group you fall into, other investment options are available, and many investors choose to invest small sums of money over a period of time to build their portfolio.
An easy way to do this is to set up automatic transfers. The investor determines how often the investments are to be made. Certain investors choose to do two tranches in a year, but others find they want to do smaller amounts more frequently. For instance, the investor might choose to have money automatically deducted from his check to be invested. As this is done routinely, the investment portfolio builds over time and the investor doesn’t miss the funds. What are the benefits of using this method?
When stocks are purchased over a period of time, the investor pays varying prices. Doing so minimizes his risk of purchasing a stock at a bad time, and the prices paid tend to be close to the average stock market prices for that period. While this approach does lead to less total growth over time the growth does tend to be slow and steady in the long run. Investors who dislike the ups and downs of the market find they prefer this approach, as they can avoid the roller coaster ride the market has been on lately.
Wait For the Lowest Point and Invest
Certain investors often state they will wait until the market hits rock bottom before investing in stocks. How does one know when the market has fallen to its lowest point? While some experts claim they know when the market has achieved this milestone, it’s hard to know if this is the case. Timing the market isn’t as simple as it sounds, and many investors find they can’t take the leap even when they believe it is the time to buy. They are paralyzed by the thought that the market may actually go even lower and hold off on making the investment. When the market starts to climb instead of falling further, they quickly come to the realization they have missed out on the biggest gains.
If this sounds like an investment strategy you would be comfortable with, consider two things. First, to be successful using this method, you must catch the market’s upward swing. Failing to do so means your long-term returns won’t be as great. Many people aim to benefit from downward movements of the market, but if a person isn’t in the market they can’t take advantage of the fluctuations.
Additionally, people in the market can and do withstand downturns. The only ones who lose when there is a downturn are those who are forced to sell at this time. For this reason, investors need to ensure they have funds set aside for emergencies so they don’t have to sell when stock prices drop even if they do have a crisis in their lives.
Experts recommend most investors avoid the third method of investing. It requires careful and constant monitoring of the market and data analysis to ensure the right timing of purchases and sales. Most industry professionals struggle with using this method and fail regularly. Imagine how difficult it would be for someone who doesn’t work with stocks routinely.
Now is the time to invest in the stock market if you are looking for long term vehicles. Choose which investment method meets your needs and get started today. Those who do so find they make a good return with time, which is the goal of investing in the first place. However, don’t overlook other investment opportunities either. Real estate remains a good bet at any time, as people always need housing.
In fact, many individuals might find they wish to upgrade their home as they will be telecommuting more. If there is one thing the global pandemic taught people, it’s that many employees don’t need to be in the office every day. However, they do need space in the home to work, and this means a new residence for some. Consider diversifying and investing in real estate along with the stock market. This is a move you won’t regret.