Let's face it: the stock market can be a frightening and intimidating place to put your money. Tales of hard-working people losing all of their retirement savings or stock brokers losing their jobs because of a market crash are not at all uncommon. While positive returns on investment (ROI) are never guaranteed, what would you say if I told you that there were a few simple principles that could increase your chances of coming out on top when investing? Well, there are and I would like to discuss a few of them with you today.
I was having breakfast at a restaurant near my house not too long ago the day after a nasty downturn in the stock market. I overheard an elderly couple discussing their finances with despair. "How is this going to effect our retirement savings?" the woman asked her husband. You see, the couple had all of their money invested in various stocks and had taken quite a hit the day before. Would they ever recover their precious savings or would this latest dip doom them to poverty? If this couple had only known about these two investment strategies that I am going to share with you today, they would have had no reason to worry.
Any worthy financial planner will tell you that systematic investment is an excellent way to grow your portfolio. Also known as dollar cost averaging, systematic investment refers to a method of stock market investing where the participant invests the same amount of money every month into the market no matter what. Only have $100 or so per month to invest? No problem! $1,200 per year invested consistently over a period of 30 years can yield excellent returns if left alone to mature. Whatever you do, do NOT sell your shares if the market does take a turn for the worse. If anything, buy MORE shares and reap the benefits of buying stocks at a bargain price! It is also recommended that you be realistic about how much you can afford to put away per month. Saving is important, but do not incur debt because you are investing too much.
Diversify Your Portfolio
I would like you to take a look at this graphic from Franklin Templeton that details the top performing sectors from 2009 to 2018 and tell me what you see:
That's right dear readers, there is a HUGE variance in performance across various sectors from year to year. Notice Canadian Small Caps with a whopping 75.1% return in 2009, and compare that with a 14.2% decline in value just two years later. What does this tell you? It tells me that it is a VERY bad idea to put all of your eggs in one basket. By diversifying your investments and buying shares of companies across all sectors, you will be sheltered from volatility and avoid disaster should one of these markets collapse. Variety in your investments is key!
Investing in the stock market does not need to be a stressful endeavor. By following a few simple rules and sticking to them, you can maximize your chances of success when investing. We would love to help you with your stock market investments or any other facet of your financial future. Please reach out to us by dialing 352-322-2205 or by emailing us here. We look forward to helping you achieve prosperity!