As I’m writing this, the Dow jones Industrial average is pushing towards 20,000! I have no idea where it will be by the time you read this and it doesn’t matter. What does matter is that, at this moment, emotions are running high and people are calling wanting to jump in or out of the market. Emotions to buy when markets are going up are just as strong as the emotions to sell. In both instances, It’s important not to make any major money moves based on what the market is doing at this very moment. This is what I recommend my clients do as the market rises.
Think about paying down your consumer debt first.
Just in case some of my readers here are sitting on cash, and somehow managed to build up some consumer debt at the same time, this small point is for you. I think it’s a mistake to begin investing your cash while you are holding credit card debt with interest rates higher than you can earn in investments. First thing’s first. Pay off your high interest consumer debt before you start investing in the stock market.
Create an investment schedule
There aren’t very many people that I know that can time the market consistently. All of the worst market timers are those that were stirred up with emotion and invested money when the market was high, and sold their shares when the market was low. Here’s the key to not being among the group of horrible market timers, TAKE EMOTION OUT OF IT! Systematically buy on a schedule. Invest equal portions monthly, quarterly or even semi-annually. The technical term for this strategy is Dollar-cost averaging. You stick to your investment schedule whether the market is up or down.
Diversify*
I know you’re tired of hearing it from every retirement planner, financial advisor and investment commercial. It’s one of the smartest ways to invest for the long term, so of course every finance guy and girl will talk about it. Why is it important?
Imagine you have a hundred stocks. Many would think that would be diversification, right? Now imagine it’s 2001 and all of those stocks ended in ‘.com’. Not so diversified now, was it? That’s why it is important to have ownership in different assets across different asset classes.
Here’s what it comes down to.
The emotions you feel when investing most of the time are wrong. In fact, your emotions are usually a “reverse indicator” of what you should be doing according to John F. Hindlelong (Dillon, Reed). Prudent investing involves taking the emotions out of the equation.
As always, you can always reach out to me if you have questions.
*Diversification does not guarantee profit or protect against loss in declining markets.
This article is written and paid for by Alfred Rich 0117-01996