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Forget about market timing and start investing for the long term.

Forget about market timing and start investing for the long term. It may be a better time tomorrow and even better the day after tomorrow, but if you are investing for the long term you shouldn't care about timing.

If you are approaching retirement age you should consider investing in the stock market very carefully, but if you are young and look at your stock investments as buying pieces of real businesses, then you need to remind yourself constantly that the economy has different economic problems, some independent and some related to the industry and specific businesses you own that affect your holdings as they affect private businesses as well, but that shouldn't be reason enough or at least the only reason for trading your holdings constantly.

The stock market is there for you to take advantage of it when valuations are ridiculously high and to ignore it when valuations are ridiculously low, but having real-time quotations available every second makes a lot of noise and confuses a lot of people that aren't knowledgeable enough to be active traders or arbitragers.

Trading and arbitraging are both speculating activities. If you are in the market to speculate then it is ok, but if you are in the stock market to invest then you shouldn't be trading or arbitraging, you should be investing for the long term. Speculating is a complicated and risky venture that has risks that many times you won't be able to measure.

So, how to invest in the stock market for the long term?
This is a very complicated question that does not has a magic formula answer, and besides you should ask yourself a couple of different questions first:

1. Am I going to invest enough time to see what I need to do when investing my money in the stock market or am I wishing to put my money here like I could put money in a CD or savings account?

2. Am I willing to stand the fact that the stock market has a real-time quotation for all of my holdings, which means that the value of my holdings will fluctuate -sometimes in a dramatic way- constantly?

Depending on your answer on these two questions is the answer to the question about how to invest in the stock market for the long term.

The second question is more complicated than it seems since a lot of people say they could easily stand volatility, but once reality comes they learn the hard way they can't. Volatility in the stock market is not about a couple of percentage points that will correct in a few days, volatility can mean years of misevaluations and constant ups and downs not bearable by most people.

If you really understand this and can stay put when it happens, -and it will constantly- then your answer to the second question is good enough for investing in the stock market.

The first question is also more complicated than it seems since investing enough time almost always means a lot more time than people have in mind. You need to know that investing shouldn't be done or delegated without proper investigation and constant studying and monitoring, which takes time!

If you don't have a lot of time and proper knowledge you shouldn't be doing it by yourself, but delegating also takes time and can not be taken as risk and problem free.

I consider indexing your investments to the whole market the best way to invest in the market for people without time and proper knowledge, since you will be minimizing your risk by not owning individual holdings of which you may not know enough or monitor constant enough. This can be done with Mutual Funds and ETFs (Exchange Traded Funds). You just need to check the administration cost and find the best cost structure available.

If you choose this path, be careful not to fall in the speculation trap that the market always has to offer: To which market or industry should I index my holdings? Don't fall for this common trap trying to guess which country or industry is the best option available; that will be speculating. Just diversify your holdings as the global economy is diversified and that should be enough. There are ETFs available for you to index a part of your money to the US and another part to the rest of the world. How much in each part? If you live in the US and you earn and spend in US dollars then you should be worried about earning in US dollars more than in any other currency, but also take into consideration that globalization is real and the US is not the only country in which you should invest your money.

There's also the option of choosing an investment adviser or money manager, which can also be a good choice. The Efficient market hypothesis states that the market is efficient when valuating stock prices, which basically means that nobody can outperform the market without incurring in more risk. I don't think the market is fully efficient and I pick my own investments, but I also think that outperforming the market is very difficult and without the proper knowledge and investigation is very risky, so be very careful when choosing who you give your money to invest.

There are a lot of ways of measuring performance and a lot of internet sites that can help you measure that performance when talking about mutual funds. Unfortunately there are not a lot of places where to seek reliable information about money managers and investment advisors, so always ask for proof of results and ask to speak with a few clients to know about their personal experience. And remember that when measuring performance you should look for long periods of time (10 years average), and if possible even longer. If you are investing for the long term you shouldn't care for a couple of year’s performance.

And finally but equally important, always check where you are investing your money and that it is really invested and really there. Scams and ponzi schemes are always part of life and the investment world but if you take the proper steps you can be calm. When investing in the stock market always verify your brokerage account is under your name and with a registered broker that's a SIPC member. Check your account yourself and that your holdings are really yours. Know that every stock purchase is assigned a Security number you can check with the CUSIP service bureau in order to see if it's real.
 
This is a very small description of how to invest for the long term in the stock market, but if you want to know more, read about Warren Buffett and Benjamin Graham, and especially about Buffett, who has an inexplicable ability to explain the most complex things in a way everybody can understand. There are many others who have a lot to teach about investing for the long term but if you start with Graham and Buffett you should get to the others automatically and without getting confused during the journey.


Disclosure: No Positions