Tuesday, July 2, 2013, AM | 2 Comments
These days the stock market is considered bullish. That means it’s on the upswing. It has come along way up. So if you had invested and stayed with it during or before the bear market, you should see now a gain in your portfolio. A bearish market, on the other hand, is characterized by falling share prices. Many folks have lost money in the bear market.
The last bear market started sometime around 2008 and lasted for a couple of years.
No need to panic…
Many folks panicked and sold their shares in individual stocks and equity mutual funds at a huge loss when the bear market was upon us. Folks who didn’t panic and stayed in the market have been profiting because of the upswing in the market.
Many folks lost a lot of money in bearish stock market. I did too; 25% in my retirement account and 15% in my stock investment, not in two years, not in one year but in less than 2 months. I didn’t panic and waited it out. So my loss was only on paper.
My shares have bounced back considerably – enough that I won’t lose money if I decided to sell. The consensus of the majority of the financial advisers is to try to wait it out if you can in a bear market.
For whatever reason, Wall Street had crashed. Many folks saw their assets, especially in real estate and stock market, diminishing their value.
Before the bear market was upon us, many people, from those close to retirement to people just starting in the work force, had gotten into stocks in a big way over the past couple of decades. I had, too. But like many others, I didn’t panic and stayed invested in stocks and equity mutual funds.
Develop relatively safe strategy to invest in stock market…
In order to avoid big losses in the bear market, you can develop strategy so that bad times will not hurt you too much financially and mentally as well. Over the long run, your losses will be minimum at worst and you’ll come out with considerable profit at best.
The following are some of the steps you can take to be successful whether the stock market is bearish or bullish:
Diversification is key to succeed in stock market
Diversification is so important it can’t be emphasized enough. That’s the first and foremost way of investing if you want to succeed in the stock market.
The old adage “Don’t put all your eggs in one basket” always holds true. Many folks had invested in Lehman Brothers bonds almost all their savings.
I know at times, Lehman was the darling of Wall Street but to put everything in one basket is nothing to be proud of. We surely know it now. (Lehman, of course, filed for bankruptcy – so those bonds may have returned something, but not as much as people thought they would get.)
If you are investing in individual stocks or bonds, anything could be wiped out if a company fails. Therefore, you should definitely try to diversify as soon as possible.
Use Dollar Cost Averaging as part of your strategy…
To be successful in using dollar cost averaging method, you may follow the below steps:
Do a direct deposit to your savings account from your paycheck with the help of your Human Resources department. Transfer some money to your checking account for monthly expenses. Transfer some percentage of your savings every month to your investment account, most probably your brokerage account.
You have a diversified portfolio consisting of stocks and bonds, etc. Invest part of your account every month whether the price of stocks in your portfolio has gone up or come down. Historically, the average has been in the black. You’ll gain in the long run.
You lose money only when you sell
In the age of online trading, it’s so easy to buy and sell. Individuals, research has shown, will buy high and sell low, exactly the opposite of what will make you maximum profit. As hard as it can be to see share prices at their lowest levels, remember that these are losses on paper only, until you sell.
It’s almost impossible to see either the bottom or top of the market. You only know it hit bottom when the stock market starts rebounding and hit top when it starts crumbling down.
Many folks lost because they saw their stocks nose-dived. The loss was only on paper until they sold it. If you panic easily, stay out of the stock market.
Be discrete in selecting financial adviser
There are all kinds of financial advisers. Educate yourself online. Read about what you get into before you talk to your financial adviser.
For instance, if you go into your bank seeking to invest in something safe, you may get someone who is not just a banker, but a broker as well. Many advisers out there will get a commission if you buy certain products.
One place to go would be the National Association of Personal Financial Advisers, whose members are compensated solely by their clients, not through such things as commissions, rebates or finder’s fees. That way, you can be assured your financial adviser is working for you – and not for the company whose products you are buying.
Long-term investment is the best way…
Chances are your 401(k) and / or your IRA is invested in stocks.
Don’t check your 401k, for example, every chance you get.
Some people check it every day even if they have twenty years left to retire.
You are in this for the long haul. Every day, the price of your shares may go up or they may come down.
You would go crazy if you checked them every day. So keep your sanity.
You surely can check your account a couple of times a year and then you could reallocate your assets if you find a need for it.
And if you find that you cannot stomach this level of losses (and mind you, only on paper unless you panic and sell), you should not have been in the stock market in the first place, period.
In a Nutshell
Just stop and think but don’t panic. Everyone has heard of Warren Buffet. You know where he is at now; a billionaire many times over. He did not get there if he did not have the stomach for losses.
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