Category Archives: Investing

Don’t Freak Out About the Volatile Stock Market – Here’s Why

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.

Investing Options for Newbies

Investing used to be a privilege reserved for the Wall Street crowd and the few others who already had enough money and were able to afford hiring a stock broker. The digital revolution of the last 20 years and some changes in laws and regulations have opened this coveted field to people of all walks of life who are interested in creating passive income and increasing their financial net worth beyond a paycheck. Nevertheless, investing is still a very risky undertaking and if not done carefully, it could very well result in a terrible financial situation.

If you have been thinking about getting in on the action but unsure where to start, keep reading – we have compiled a list of a few investment options that are well suited for newbies in the field.

Certificates of Deposit – Play it Safe

CDs (Certificates of Deposit) have been around forever, and to this day remain as one of the safest investment options. Most banks and credit unions offer CDs with various terms and APYs. As a general rule of thumb, the longer the term is, the higher interest rate it offers. Keep in mind that there are penalties for early withdrawals so only choose a term you feel comfortable with not having access to this money. The APYs offered vary widely from one financial institution to the next, so take the time to shop around for the best rates. In our experience, local credit unions offer much better rates than large national banks.

Wealthfront – Get Started With Automated Investing

Wealthfront is where I do all of my taxable investing. I invest in index funds anyway, where fees are very low, but Wealthfront has the added bonus of Tax-Loss Harvesting, which takes advantages of market volatility to help reduce your tax bill, leaving you more money to invest. And right now, you can get $5,000 managed for free!

There are many other robo-advisors to choose from, including Betterment, which has offerings similar to Wealthfront. It doesn’t matter which service you choose, as long as you do something productive with your money!

Robinhood – Commission-Free Stock Trading

Robinhood will make you feel like a real stock broker – with this app you can invest in actual stocks, in addition to cryptocurrencies, ETFs and options, all commission-free. That’s right, Robinhood offers free stock trading! The standard $10 per trade fee charged by most other brokerages is no longer a deterrent to the new investor who may be wanting to buy just a few shares while learning the ropes.

Fundrise – Invest in Real Estate

Fundrise is a platform that allows you to invest in real estate. The company manages a diversified portfolio of real estate properties, and your investment is spread amongst dozens of assets, thus minimizing the investment risk and optimizing your investment returns. The current minimum to invest is $500, and even though this may sound like a significant amount compared to some of the options we discussed earlier, keep in mind that real estate is expensive and without platforms like Fundrise most of us would never have the capital to invest in real estate independently.

Rule of Thumb – Diversify Your Investments

Whatever options you may choose to get started, do not forget the cardinal rule of investing – diversify, diversify, diversify. Split your investment money between several options you feel comfortable with and continue educating yourself on each in order to ensure your long- term success as an investor.

Investing 101: It’s Not That Hard

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.

stock market chart

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.