You went into investing in the stock market aware that the market has high and low times. Here are some tips for playing the market through those ups and downs, level-headed and with a plan in mind.
• Hang on to long-term investments through dips in the market. When the market falls, many investors are tempted to sell their stock right away. Unless you really think the particular stock is going to become worthless (like if some truly catastrophic news has come out about the company from which you think it will not recover – and in that case, you should sell – and sell as fast as you can before the value drops like a rock), it’s best to keep the long-term goal in mind. In fact, this is the perfect time to take advantage of rock-bottom prices and buy more stock. Resist the urge to react without considering the long-term advantages of holding onto that stock until it rebounds.
• Invest a set amount every month or quarter, regardless of how the market is doing. This strategy, referred to as “dollar-cost averaging” will keep you investing no matter how the market is doing. Keep your focus on the long-term, and buy more stocks when prices are low, and fewer stocks when prices are high. Either way, your money is being invested, and you are less affected by the ups and downs of the market.
• Make sure you have a significant amount of cash reserves available in savings accounts or money market accounts so you can ride out any serious dips in the stock market or any significant losses.
• Resist the urge to try to ride the wave of the latest investment trend. If everyone’s investing in google stock, try investing in something else. When everyone invests in the same place, eventually the trend turns, and the prices drop again, leaving you holding stock that may not have increased all that much over the long run. The ride may have been exciting, but the end results of chasing a trend may hurt you financially.
• Diversify your investments. Be careful not to put all your eggs in one basket in case that basket gets dropped. Make sure you have a healthy array of investments – cash and bonds, IRAs, stocks, and mutual funds – and make sure you aren’t just chasing most recent trends.
• Research before you buy. Check out financial press releases such as the Wall Street Journal and investigate companies on the Internet before you buy stock in a company. Look for concerning information about the welfare of the company, and consider external influences such as season, price of fossil fuels, economic trends, etc.
• Make sure you have a good investing vehicle before you get started. You can go through a broker or do it on your own, but either way, playing the stock market always involves fees. Make sure you’ve checked out your options before you buy.
Play the market carefully, and enjoy the ride!
