Good evening everyone and welcome back. If you have been following the stock market you would have noticed that the its been a shaky ride in 2018.
The S&P 500 index is down 6.23% year to date and over 12% off its peaks in October. So most of the people are uncomfortable in times like these especially if they have a big portion of their money in stocks. So I decided to provide you with a couple of tips to help you during a bear market.
1. Exit your more speculative investments.
Im talking you super high pe growth stocks which pay no dividend. This is just my opinion, but I would not hold a stock which pays no dividend in such a market conditions. Yes you might have bought a certain stock for the ”long-term”, but stocks like that can go down up to 90% off its peaks and that would take a ver very long term to get out of. For example if you have invested in Microsoft in the peak of the dot com bubble in 2000 it would have taken you 15 years just to break- even! And when you factor in inflation you would have actually lost a big chunk of money. So do your due- diligence and see honestly if you have any speculative positions and seriosly consider selling them, even at a small loss.Also thiss will keep some more money on the side which brings me to number two.
2. Keep as much cash on hand as you can
Cannot stress that enough how important this is during a time of market volatility. The further we get into a bear market the more companies will trade at compelling prices and you would want to get advantage of that. There are some things you can do to boost your cash amount up. You can save the money from your income in a good old savings account instead of putting them straight into the market. I started doing that in the last couple of months and im feeling in a much better position now. First I am getting some yield on my money without much of a risk and second im getting a good position into entering stock at a good valuation. That is how Warren Buffet has been able to beat the market by a wide margin in so many years. That is why he is sitting on a huge pile of cash and just waiting to deploy it when the time comes.
3. Dollar cost avarage into the market
So what does that mean? That means that instead of investing all your savings at once you start doing that gradually every month. For example you have a $10,000 and you want to start investing. Instead of dumping them all at once you are going to invest them at lets say at portions of $500 a month. It is easier said than done because requires discipline, which a lot of people lack nowaydays , but it will help you a lot over the long run, especially with investing in the late stage of the cycle that we are in. That way you are going to buy stocks all the way down which helps to drive total returns higher going forward.
4. Invest in stocks which pay a dividend
Stocks which pay a dividend tend to be more stable and not so volatile during a bear marker. Of course there are some exceptions , but in general that is the case. Stick to big renowned companie which have increased their dividends for many years like the Dividend Aristocrats for example – stocks which have increased their dividend every year for the last 25 years. These are some stocks who have been through alot of economic downturns and still managed to increase their dividends. Also getting paid a dividend every quarter helps you not to worry about the price of the stock so much and sleep well at night. Especially if that dividend is increasing every year.
5. Invest in companies with less debt
A lot of companies today have huge amounts of debt at that is going to be a problem for them moving forward. Usually the stock market downturns are coming in time when interest rates are rising. Companies with a lot of debt are going to have harder time repaying it , especially when the economy is weak and consumers are buying less.
6. Invest in companies that you trully believe in for the long-term
Usually when we buy a stock we buy it for the long term, but our mind can change if we see that stock down 50% for example with a bunch of bad news coming out every day that make us question our choice. It takes some strong mentality to ignore everything and continue buying with all that unceurtanty around the stock. That is why you should know the bussines you are investing in very well and know why you invest in it. If you have that in mind at all time it would be so much easier to ride that downturn and even take advantage of it. But if you invested in a stock just because someone told you to do so than you can be in a very tricky situation in the downturn. You see all those negative news all around you and you decide to sell just because you are not sure what to do. You will not be the first person who has done that and will definetely not be the last, but try not to be that person at all.
In conclusion I would just like to point out that a downturn can actually increase our wealth by a big amount if we know how to take advantage of it properly. But it can also make us lose everything we have if we are not careful. That is why it is important to stay informed and make sure you know what is going on around you and how to adjust to different conditions not just in the stock market but in all areas of life. That is all from me today , hope you had an interesting read and wish you all the best and great holidays.