Six strategies for investing in any market
By: Michelle Fox
December 24th, 2019
With large gains and repeated record highs in the stock market, this year could be one for the record books.
Yet it wasn’t all smooth sailing. At times, concerns about trade caused spikes in market volatility.
Whether you want to jump in with both feet, feel you’ve missed the boat or want to run in the other direction, there are some strategies you can follow to invest wisely.
It’s also important to remember that the market is going to go up and down several times during your lifetime, said investor Danielle Town, author of “Invested” and co-host of the podcast InvestEd.
“The way I handle it now with my investing practice is I pretty much ignore it,” she added. “I find wonderful companies with great management with strong competitive advantages at, hopefully, a good price.”
If you want to invest wisely, there are several strategies you can follow through both calm and volatile times.
1. Have rules and a system
Worried about the uncertainty and lack of control surrounding stocks?
Financial behaviorist Jacquette Timmons says you need to confront your fears by figuring out what exactly you are afraid of. And then, educate yourself about the ways to gain command of an investment strategy.
“What gives you ‘certainty’ and ‘control’ is having a system for investing, having some rules for investing,” she said.
Those rules could be around what kinds of stock you want to buy, how you evaluate its performance and the reasons you would want to sell — based upon company performance, not market performance, Timmons explained.
The system would be when you are actually evaluating those rules, whether it is quarterly, annually or some other time frame, she added.
2. Have a balanced portfolio
Make sure you have an “extremely robust portfolio,” which means the ideal mix of stocks and bonds that works for you, said certified financial planner Stacy Francis, president and CEO of Francis Financial in New York.
An old investing rule of thumb is to have 60% of your portfolio in stocks and 40% in bonds. However, everyone needs to evaluate what is best for their specific situation, such as the length of time until retirement.
Francis believes the majority of people have too much stock in their portfolios right now, thanks to the run up in the market. The Dow Jones Industrial Average is up more than 50% since President Donald Trump was elected in November 2016.
“If you’re watching your portfolio going up and down and finding that you’re taking an obscene amount of Alka Seltzer and you can’t feel comfortable sleeping at night, that is actually a very good wake-up call that the portfolio you have — that mixture of stocks and bonds — may not be the right portfolio for you,” said Francis, a member of the CNBC Digital Financial Advisor Council.
3. Think long-term and wait
Forget short-term trades, said Town.
She follows the investing practice of Berkshire Hathaway CEO Warren Buffett. That means buying stocks and then holding them for the long-term.
“Warren Buffett says the secret to great investing is to wait,” she said. “What he means by that is: Wait for the right thing to come along, the right company at the right price.”
4. Make investing a practice
Town also likes to think of investing as a practice, similar to going to yoga or running a certain number of days a week.
“Think of it as being more about your own personal experience than about what’s going on outside of us in the market because we don’t control what’s happening in the market,” she said.
This way, she can sit back and discover what companies she is interested in buying.
5. Save 5% or 10% of your income
What you can control is how much you put aside for savings — including for emergencies and retirement, Francis said.
Ideally, you should save 5% or 10% of your income each year, she said. To really outperform, put aside 15% if you can.
6. Invest in your values
When assessing what companies to buy, think about your values, said Town.
“Choose companies that are doing wonderful things in the world that you really want to support with your money,” she said.
“Then invest in those companies at great prices,” she added. “Companies that have a stronger purpose than simply making money tend to do better overall in the long term.”
