Tags: destroy | wealth | invest

Market Dips Are Buying Opportunities

Market Dips Are Buying Opportunities

By    |   Friday, 22 June 2018 04:19 PM

There are many paths to either financial prosperity or destruction.

Many investors fail to get the stock market’s average return. They find a hot strategy that’s worked during the past few years, and jump in—right before that strategy starts to lose its luster. For instance, earlier this year, folks who had been shorting market volatility and making a decent return over the past few years saw all those profits unwind when volatility blew up.

The better way to prosperity is to follow the example of the tortoise, not the hare. Finding a working strategy and sticking to it, even when other strategies seem to rocket on by, ensure long-term success, rather than quick profits followed by their even quicker disappearance.

Of course, there’s one way that will guarantee that you destroy your wealth. Under this strategy, you not only lock in short-term losses, you deny yourself the chance for future long-term profits.

What’s this lose-lose strategy?

Panicking during a market selloff. Based on everything I’ve learned about investing over the decades, it seems to be the most efficient way to ensure that you’ll never end up wealthy.

Market pullbacks—like this week’s latest tariff tantrum— are inevitable. But it’s how we handle them that matters. I get it. It’s tough to see profits that took weeks or months to grow vanish overnight. But nothing in life follows a straight line, and investing is no exception.

In fact, the only thing exceptional about investing is how we treat market selloffs compared to other financial transactions. If I went to my favorite restaurant and they were having a 25 percent off sale, I’d be ecstatic. If I was looking to buy a new car and could get into last year’s model for 50 percent off the stick price, I’d be bragging about that one for years to come.

But when a stock (or the overall market) falls even 5 to 10 percent, instead of thinking about bargains, most investors head to the exit. That’s a panicked reaction.

Personally, I can get that feeling too. I hate to see my net worth drop just as much as anyone else. But I also know that selloffs create bargains that didn’t exist before. Much like the tide going out and showing buried treasure, the market selloff earlier this year some great trading opportunities. That’s included various positions from consumer goods to telecoms to the tech space. If stocks hadn’t sold off, they’d still be at all-time highs, and likely headed higher. When everything’s high-priced, there are few bargains to be had.

I’m not saying investors should blindly buy any market dip either. But a sizable drop in the stock market is a time to slow down, take a close look at what you do own, and see if the fundamental reason to own shares have changed.

And, of course, automating some of your investments is a great idea. A 401(k) or 403(b) plan that regularly sets aside part of your paycheck ensures that you’re putting money to work in stocks whether the market is up or down. If it’s up, your dollars buy less. If it’s down, your dollars automatically buy more.

For investing in individual positions, there are always recommendations like those in the Financial Braintrust service or Insider Hotline, where we’ve been having a stellar year thanks to the market volatility.

Much like a batting average in baseball, there’s no such thing as the perfect investor. But that doesn’t mean you should never step up to the plate and swing at the ball.

Avoiding a big market selloff—something on the level of the financial crisis—can mean preserving a ton of wealth. But avoiding buying stocks at all because of such a selloff, as millions have done, mean a permanent loss of wealth creation. Time heals all market wounds, provided you stay in the game and don’t call it quits.

The declining percentage of Americans who own stocks is a sign that many have thrown in the towel. Don’t be one of them. Investing doesn’t have to be an either/or tradeoff. You can raise cash by selling some positions rather than sell out of the market entirely. You can sell covered call options against positions you own. You can sell put options on companies you’d like to own at a strike price you’d be willing to pay.

The point is, there are far more ways to make money than either being all-in on stocks or being all-in on cash under the mattress.

Use market fear as a buying opportunity, and use market greed as an opportunity to take some profits off the table, and you’ll be on the track to let the markets help grow your wealth over time.

Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.

© 2021 Newsmax Finance. All rights reserved.

There are far more ways to make money than either being all-in on stocks or being all-in on cash under the mattress.
destroy, wealth, invest
Friday, 22 June 2018 04:19 PM
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