Category Archives: Investing

If you haven’t felt any apprehension about the stock market in the past year or so, then you likely haven’t been paying attention. Many investors feel they’ve been riding a roller coaster recently, but at the end of the day, it’s not a great idea to unbuckle your seat belt or give up just yet.

Let’s talk about the stock market’s volatility and why it shouldn’t panic you just yet.

How the Stock Market Has Been Acting

Ever heard of the VIX? That’s the Chicago Board of Exchange’s Volatility Index. It’s how we tend to measure how much the stock market is fluctuating.

Last month, the VIX rose as high as 24.59. That’s not excessively high, but that’s the highest the VIX has been in 2019. Therefore, some people have been a bit nervous about what’s to come in the latter half of the year.

Why You Shouldn’t Pull Your Investments Now

When the stock market becomes volatile and begins to fall, you might feel the temptation to sell all of your holdings and get out while you still can. It’s only natural – you want to remove yourself and your assets from a situation that could potentially have a terrible outcome.

However, various studies over time have indicated that people who pull their funds in times of volatility actually suffer more than those who ride the waves. The stock market is always ebbing and flowing, and if you want to see long-term benefits, it’s often better to buy and hold diversified portfolios for as long as possible.

In all honesty, it’s impossible to time the market just right. Why do you think there are so many people making different guesses and providing different investing advice at the same time? No one can say for certain what’s going to happen, and by trying to predict when you should sell your holdings during a downward slide, you set yourself up for failure.

How to Avoid Feeling Stressed About Stock Market Fluctuations

If you don’t want to spend hours every day monitoring your investments and worrying about what you should do with them, I have a few suggestions for your strategy.

Step one: don’t invest for short runs. When you buy a bond or stock, tell yourself that you’re in it for the long haul. Even when things start to get rocky, hold on and remind yourself that this is a long-term waiting game.

Step two: invest at different times rather than all at once. Because the stock market is always changing, you can take advantage of its fluctuation and invest at different times. This allows you to buy stocks at better prices and continuously diversify your portfolio.

Step three: speaking of diversification, don’t ever put all of your eggs in one basket when investing. Although market gains will almost always outpace standard savings rates, your chances of making a solid return on your investment are higher if you distribute your investments well.

Step four: stop checking your accounts every day. Ever heard the saying that a watched pot never boils? Checking on your funds every day only makes your more likely to have a knee-jerk reaction and sell when volatile times come around. Take a step back and let the market work its magic away from your watchful eyes.

In Conclusion

Investing always carries some risk, whether you’re investing one dollar or a million. Accept that early on and you will save yourself a lot of pain and worry when the market becomes volatile.

Remind yourself that, overall, you’ll come out ahead if you don’t sell at the first time of trouble. Invest in a well-diversified portfolio, then plan to stay with that strategy for years to come. Bailing at the first sign of trouble certainly won’t make you rich, so don’t listen to everyone else who’s trying to time the market just right.

If you’re new to investing in the stock market, the terminology and numbers might scare you at first sight. Fancy math, charts with patternless lines, PhDs in fancy suits. I have news for you: it’s all a facade. The secret is that over 90% of these guys with their quantitative models and algorithms can’t even beat the benchmark index with any consistency. If you’re out trying to get rich trading marijuana stocks and alt-coins, the data shows that the odds are so stacked against you that it’s not worth the time or the stress. The failure rate is around 98%. Here’s a quote from famous investor Warren Buffett:

“The 21st century will witness further gains, almost certain to be substantial. The goal of the non-professional should not be to pick winners — neither he nor his ‘helpers’ can do that — but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.”

The reason why active managers are so bad at doing their job has nothing to do with their intelligence. In fact, it’s the most brilliant guys that are susceptible to failure at short term investing or trading. The reason is that human nature and trends are so unpredictable and random in the short and medium term that it turns stock picking into nothing more than guessing using fancy math and fundamentals. If you throw in human emotion, in only compounds the problem further. The market has a way of exploiting ego and eating alive the folks that are 100% certain of their picks in a completely uncertain environment. Here’s another quote from Uncle Warren:

“By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”

So how do you make money in what seems like a floating casino? It’s pretty easy, actually. Just keep it simple. Let’s use my mother, for example. If you asked her to give you the ticker of any company in the S&P, she probably couldn’t do it. She’s also made, on average, about 12% annually over the past 15 years. Past performance is not indicative of future returns, but on average the market returns around 8.5% annually. The key word here is average. There will be bumpy roads ahead, and the headlines will not help.

Here’s a chart of the overall market since 1900. Through thick and thin, we’ve weathered every war, crisis, disease, political scandal, and bubble to date. That’s not to say there’s no significance in the issues that I just previously listed, but they are issues that aren’t capable of knocking the overall market off of it’s long term trajectory. They are issues that are of tremendous value to media outlets in efforts to catch eyeballs and clicks while at the same time stirring up some entertaining water cooler material.

A solid investment strategy really revolves around keeping it simple and detaching yourself from the short-term noise. Buying a simple index fund, or portfolio of safe large cap stocks on a recurring basis is a proven investment method. Whether it’s on a monthly or quarterly basis, with $100 or $10,000, the return on your investment over a longer time frame will surprise you, and there’s no better time to start than right now. Vanguard and Fidelity are the popular places to buy cheap index funds, but be on the lookout for some special offers that you can take advantage of. Brokers are at war with each other in customer acquisition.