Smart Strategies for Staying Ahead in Uncertain Markets
Submitted by Neville Associates on August 5th, 2024
Over the past few years, the market has appeared to be on a rollercoaster, providing investors with moments of excitement followed by heart-palpitating anxiety. Staying ahead during uncertain market activity seems impossible, but smart strategies exist that can help you mitigate some of the risk of investing, particularly during uncertain market periods.
Willingness to be patient
Investing in the stock market is complicated. The complexity doesn’t just come from trying to make sense of the endless ratios and calculations that people come up with in an attempt to predict how the market will fluctuate and how companies will perform over time. It comes from their ability to be patient in world that magnifies immediate gratification.
According to a study from the University of California at Berkley, over time, 90% of investors lose money. Not only was this prevalent back in 2009, it still holds true today. People jump on trends, buying and selling to get the quick buck. The market doesn’t approve of shortcuts. The potential for doing well in the market comes more from time and patience than anything else. “The stock market is a device for transferring money from the impatient to the patient,” says Warren Buffet, the world’s greatest value investor, highlighting the importance of having a long-term strategy.
Money, if invest carefully, may grow over time because of compounding. Compounding kicks in decades down the road. It doesn’t happen overnight. According to a Barron’s study, Warren Buffett earned over 90% of his net worth after the age of 65. He started investing at the age of 10 and has done it consistently for over 80 years. He is living proof there is something to be said about patience.
Emotional stability
One of the biggest mistakes people made in 2008 when the market crashed primarily due to the housing bubble bursting, was panic selling. Investors began losing money hand-over-fist and started selling their interests for fear we were falling into a new Great Depression. Watching your net worth being decimated before your eyes is a traumatizing experience. Unless you are going through it, you have no idea how scary that is.
Even people who are not high-net-worth panic when a bear market growls, and it is human nature to sell, though not necessarily the optimal approach. Investopedia states, " Those who stayed invested during these difficult times perhaps came out in the best shape.”
Be Diversified
Owning several different assets (diversifying) is one way to help mitigate the overall risk of your portfolio and market uncertainty and volatility. However, you will never be entirely risk-free. All investing involves risk. But taking steps to be diversified and owning different types of investment instruments, from stocks and bonds to index and mutual funds, treasury bills, certificates of deposit, and even real estate work to lower the risk of losing everything should one of the investments experience a significant decline.
Invest within your means
Investing within your means begins with living within your means and understanding your income versus your expenses, your spending habits, why you buy what you buy, and your ability to create and follow a budget. On the Temple of Apollo in the ancient Greek district of Delphi, there is an inscription, “Know thyself.” Two of the most cogent words ever put together. Once you have a better understanding of how you behave, work on investing within your means, meaning only gamble in the market what you are safely willing to lose without that risk interfering with your happiness or financial responsibilities.
Consult a financial professional
Maybe the smartest strategy you can do working to stay ahead of uncertain markets is to consult a financial professional. With their help, you can find out where you stand in your current financial position, where you would like to be in the short and long term, and how certain decisions may impact these strategies and goals.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Sources:
3 Reasons to Not Sell After a Market Downturn (investopedia.com)
Shocking But True: 90% of People Lose Money in Stocks | Medium
Why 90% of New Investors Lose Money in the Stock Market? (linkedin.com)
Gnothi Seauton. Know Thyself. - The Kensington Sierra Madre
Warren Buffett Has Amassed Over 90% of His Wealth Since He Turned 65 - Barron's (barrons.com)
The 200 best investing quotes of all time - Equito
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