Our beliefs and principals about investing become challenged when we are faced with severe downturns like the one the economy has taken recently. However here are some basic truths and tenants to which all investors should subscribe and some strategies to position yourself to take advantage of the market recovery when it comes.
Three Fundamental Beliefs that are Key to Investing:
1. Faith in the future. When John Glenn went into space for the first time he had less power in his space ship than we have in our cell phones today, but he had faith in space program and that he would return safely. Investors should have faith that the market will recover and we will be able to invest successfully again. What will be successful may be different that in the past, but to invest properly you should have confidence that the future will be bright.
2. Patience. No one is more patient than Warren Buffet. He is 84 years old and still investing in companies and the stock market. The recovery will not happen overnight. It will take a while and patience is necessary.
3. Discipline. Don’t sabotage yourself between fear and greed. Have a strategy and stick to it. Once again Warren Buffet is a good example. He buys when people are most fearful about investing and sells when greed is high.
Strategies You Can Implement Now
1. Have an asset allocation strategy and diversify. Do not put 100-percent of your money in any one investment and donâ€™t hold all of your wealth in stocks or cash. Many well-rated bonds are paying higher percentage rates than money markets and CDs. Your overall asset portfolio should include some stocks, some bonds, some cash, and some real estate, for example. Diversify between different sectors of the market. Donâ€™t hold all technology stocks or industry stocks. Have a portfolio that stretches across sectors and industries.
2. Dollar cost average into the market. Put the same amount of money into your investments each month. For example, instead of investing $25,000 at one time, divide the amount into smaller, equal amounts to be invested each month. Sometimes you’ll buy higher, sometimes lower. The theory of dollar cost averaging says that, over time, you will spend less because you have systematically and methodically invested in the market during different cycles. If you are contributing to a 401 (k) plan, you are already doing this.
3. Harvest Some Tax Losses. Chances are you have lost money in stocks and investments this year. It might be time to sell off those money losing stocks so that you have tax losses to claim when you do experience capital gains in the future. Have a dialogue with your financial advisors and your tax advisors about how to implement this strategy.
Want more info? Click here to listen to Kathleen’s weekly financial tips on Chat with Women.