Make the Most of the Market
26 Oct 2015
The best advice that I can provide to my clients is to implement strategies with the goal to take advantage of rising markets but also prepare them in the event of a surprise downturn. The market is something of an emotional beast. It has its scientific side, but it does not have to act by any particular set of rules. It is a truly free market—and it is hard to predict. There’s one thing I can tell you with certainty about what the market will do on any given day, week, month or year: It will either go up, or it will go down, or it will stay the same.
Nobody knows what’s going to happen in the near term. Through the years, we will have some violent downturns in the market, and we will have some exuberant rises. I do believe in the long-term growth of the economy.
The concept of “dollar cost averaging” is a wonderful strategy during the accumulation phase to take a lot of the emotion away from investing. As you continue to regularly invest, the market rises and falls and rises anew. When it’s down, you are buying your shares at a bargain. The effect over time is a significant reduction in your cost per share, even in a market that has only gone sideways. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in the price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.
You can think of a downturn as the market holding a sale. Back in 2008–09, when the Dow was down in the 6000’s, stocks essentially were on sale. It seems Americans will buy anything on sale except stocks. When it comes to investing, so many people rush to buy after the price rises. What’s up with that?
My advice: Stay invested. Staying fully invested is how you pursue financial wealth, not by trying to time the market. Not by trying to get in and out. Not by trying to find some hot tip. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please consult with an advisor about your specific situation.