You may be wondering why can't I make money in the stock market. Many investors who have recently looked at their 401k statement opened their last quarterly and said, "wow! my account is now back to where I was in 2000." Well be assured that you aren't the only one who has thought that. The last decade has been a complete cluster f%ck. And, if you got out of the markets after the landslide we saw in 2008, only to jump back in in the last year, you may be thinking of firing your financial adviser.Or worse yet, you may be looking for any sharp objects within arms reach. But wait! Drop the letter opener. That's not the answer. You should not go it alone. And you definitely should not give in to the poor performance that we have become accustom to over the last 10 years. Instead, let's focus on the positive and keep things simple.
In my career, I would always tell my clients to quit over analyzing and get back to the basics. Too many times, investors look for the next best stock to own or find themselves chasing performance. This can lead to rash decisions which will ultimately make you feel like you aren't making any money. It can leave you thinking that the stock market is not the place to invest. Here's my opinion: Keep emotion out of investing. I will talk a lot about this in the weeks, months and years to come. This is so important because the average investor under performs the index because they constantly make changes to their account. Instead, it is proven to stay invested at all times, both during the bad years and good. This leads to my second opinion: Don't try to time the markets. A good investor will stay invested and look for ways to hedge their portfolios with the appropriate investment strategies. Now, I know this is easier said than done. Especially, when you are opening your statements every quarter only to see the value decline. Or worse yet, is opening your account online to see your account has lost so much money just from the day before. This will make you feel like pulling the trigger to get out. However, once this happens many times you find that you sold at the bottom. You tell yourself, "I'm going to wait until the markets go back up to get back in". WRONG! a few weeks pass and now the markets have risen so much and you face a dilemma. You hear two nagging thoughts in your head. First, do I get in now after the markets have risen so much already? Second, you just cant seem to pull the trigger and find yourself gun shy. If you chose the appease the first devil on your shoulder,you may find that you just bought at the top. Or, if you go with the second little devil on the opposite shoulder, you will likely find yourself getting back in years later like I mentioned above. You may be reading this and saying, Ha! that's not me. I actually have done very well with my investments. Or you may be sitting there thinking how much you can relate to everything I just wrote. For those of you who fit into the latter, investing does not have to be this agonizing.
So you may be wondering, how do I make money like me? Well, let's get back to the basics. First off, how would you describe your money personality? Are you conservative with your money, a wealth seeker or somewhere in between. Many times individuals are investing today like they were 10, 20 or 30 years ago. It is seldom that a person in his/her 50's should be invested like someone in their 20's. So, if you haven't made any changes to your account, that would be a great start. But first, in order to determine that money personality or better, "risk tolerance", you need to sit down and determine that before investing. There are ways to calculate your tolerance for risk by understanding your attitude about volatility and the time you have to invest. There are quizzes you can take to help you in determining your money personality. I will try to have one posted in the coming weeks.
Secondly,when was the last time you looked at what you own in your account? Is your account still invested like you are expecting Armageddon? In other words, after 2008, did you dive 100% into gold or bonds. If so, it's time to reallocate. Or did you recently get all in on tech stocks like Apple because the markets just can't seem to stop going up. Whatever your current allocation may be, it is always good to take time to revisit what you own. Their are ways to know just what appropriate mix of stocks, bonds, cash and alternatives you should have in your account. I will share this with you in coming posts. So stay tuned... for now, just know it is very important to be on top of your allocation.
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