The stock market can be a fickle animal. Long and short term investors should follow a few tips to ride out the lows and highs of a sometimes volatile market.
Beating the market puts you ahead of the pack but if you’re expecting to double market returns temper your excitement. Unless you’re investing significant amounts of money in a respected fund run by a superstar money manager getting epic returns is not likely.
Investing in an unknown company which becomes a media darling can help you grow your investment quickly but these companies are few and far between. If you’re putting money into a mutual fund or ETF expect slow and steady returns over time. Make beating the market by a percent or so your ultimate goal.
Think long haul. Patiently check your portfolio’s performance quarter after quarter. Although you do want to move out of a less than stellar sector if it seems to be failing give your investment a chance to right itself. Unless you’re investing with a time frame within weeks or months sit tight to ride out any short term corrections.
Know Your FA
Whether you’re investing heavily in the market or dipping your toes into stock, bond and mutual fund trading know your financial advisor. Set up a sit down interview to connect with your advisor. Ask them as many pertinent questions as possible to get a feel for their intent.
Are they hungry to hit things out of the park? Taking wild or blind risks is the trait of a gambler as opposed to a sound, wise, experienced investor. Smart financial advisors are confident enough in their abilities not to brag about their accomplishments. Their past speaks for itself.
Is your prospective FA experienced? For how many years have they been managing accounts? Have they consistently beaten the market averages? If each question is answered to your liking feel free to continue the relationship.
Practice Emotional Discipline
All-time investment great Jesse Livermore stressed that controlling your emotions is a chief aspect of successful trading. A combination of greed, fear and hope rule the market. Investors want more, fear losing it all, or hope that their plummeting investment will turn around.
These powerful emotions will arise in your being but you can’t be a successful short term investor unless you let them go without acting on them. Practice emotional discipline. Catch yourself when feeling greedy for a bigger gain when you should take your profit and run. Watch when you fear losing it all when you should sit tight for a small market correction.
Most of all, watch when you hope for a comeback after one of your stocks dives 30%, 40% or 70% in a matter of hours or days. Put strict trading rules into place. Decide to take some profits when your stock is up 20% and cut losses when your stock is down 8%.
As for longer term investment strategies you’re far less likely to see such wild swings but if you do note big movements consult with your financial advisor before making a rash decision.
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