Sun Oct 13, 2013, 1:00 am | 3 Comments
Without a plan in your personal finance, you’re like a sailor in the middle of the ocean without a compass. You don’t know which direction you should head in to avoid miscreants and others that might harm you bodily. To void getting hurt financially, you can implement essential investing strategies to get you through bad times with minimum loss, if any.
Along the way, watch out for scammers and Ponzi schemes for a relatively smooth sailing.
You need to have a good head in a sense that you don’t panic in a bear market and stay with your investments. When you buy and / or sell (especially sell), you do so according to your long-term strategy and not because you can’t stand the heat of the bear market.
You need to build a portfolio. The first thing to remember is to not put all your eggs in one basket, as the saying goes. In order to do that, your investing MIX ought to be the combination of Asset Allocation and Diversification.
listen to this…Andrea Coombes @MarketWatch.com
In a paean to American optimism, a new survey finds that investors are confident they’re saving enough for retirement, even though many admit they don’t know much about investing and don’t have a financial plan or even clear financial goals.
Fully 89% of investors surveyed said they’re confident their investing strategy will allow them to realize their retirement goals, according to the survey of 750 U.S. investors by Natixis Global Asset Management, with headquarters in Paris and Boston.
But 72% admit their investment knowledge is weak, 54% said they don’t have a financial plan and 45% said they don’t even have clear financial goals, according to the survey, which focused solely on investors with $200,000 or more in assets.
The last paragraph caught my eye:
- 72% admit their investment knowledge is weak
- 54% said they don’t have a financial plan
- 45% said they don’t even have clear financial goals
A wise man once said: “It’s important for investors to spend time to put a plan in place. As you go through market cycles, it’s inevitable you hit bumps in the road.”
A word of caution
None of the strategies ensures a profit or guarantee against a loss. Some short-term investments may have investment risks and should never be considered cash equivalents.
If you’re younger, you can take risks. Therefore, you can invest heavily in stock funds. If you’re older, you must act more conservative and invest more in bond funds and savings and money markets.
The danger comes into play when folks do the reverse: being conservative while they’re young (missing out on stock investments and bigger profits) and more aggressive when they’re older (investing heavily in stock market.)
Here are five essential investing strategies that works in any kind of – bull or bear – market.
Asset Allocation is basically putting your money in different investment types. There are three basic types you may invest in:
- Stocks (Equities)
- Bonds (Fixed Income)
- Short Term Investments (Savings, Money Markets, etc.)
Diversification is when you spread out your investments within investment types. A variety of companies, industries, countries, sizes. Mutual Funds simplify diversification. For diversification to take hold, you ought to invest in stock funds, bond funds and short term such as cash or bank accounts that are easily and readily available.
Rebalancing means monitoring and adjusting your portfolio over time. This helps performance and protect against problems that may surface.
Dollar Cost Averaging
This means regular investing. This is one of the most important things you can do to your portfolio. Create schedule for investing, figure out how much to invest. Then set up automatic deposits in your brokerage account.
The psychological Factor
If you easily panic and have no tolerance for risk, then you should not get into stock investing. Many folks panic when they see first sign of a bear market and start selling. Sometimes it just so happens that the market is correcting itself. That has happened before and it’ll happen again. You just have to stay put. In the long run, you’d come out ahead.
Go over your goals and current approach regularly at least once a year. If need be, you can get professional analysis of your current investment mix. You might be able to discover possible improvements to your portfolio and specific investing ideas.
In a Nutshell
Which investment mix is right for you depends on:
- Your financial situation
- Your tolerance for risk
- Your time horizon