Just like life, the market has its ups and downs. At any point in time, you’ll always be able to find news that says the market is doing well, or that the market is doing poorly. And after either a market boom or market bust, you’ll always hear people say “I knew it! That’s why I sold/bought X number of Y shares at that time!” from the people who happened to make the right decision, and the people who didn’t make the right decision fade away, until the next market cycle.
The truth is, no one knows how the market will perform, not even Warren Buffet. And unless someone has access to insider information regarding certain companies, they won’t know how the market will perform either. What we can do, is use some tried and true strategies to protect our money. Today, we’ll talk about a few of the strategies that can help you grow your money safely.
Dollar cost averaging. Dollar cost averaging is a great way to help you avoid market fluctuations. The idea is simple: put the same amount of money into a certain investment every period. As an example, you may choose to set aside $100 every week your investments. Your investments can be ETFs, stocks, mutual funds, or segregated funds, it doesn’t matter. The key is to be committed and consistent. Whether the market is up or down, just put in that same amount, every period.
Invest for the long term. Your time horizon is important. The shorter your time horizon, the more risk you’ll inherently need to take on. Take a look at the Andex chart linked here. Notice something interesting? See how the market always trends upwards? That’s just the way the market goes. If you can stay in the market over a long period, chances are you’ll get positive returns. Investing in the short term can bring high risk, and also brings us to our next point.
Don’t be a day-trader. You have your career, and the truth is you will make most of your money from working, and not from investing. There is little benefit to sitting in front of the computer all day trying to make multiple transactions per day. Additionally, if you’re trading yourself using online banking accounts, chances are you’ll end up making the bank more money than anything, through paying all the banking fees. This is even more important when the market is fluctuating.
Protect yourself and your family first. Many people get excited over the potential of making money on investments, but they forget about their most important money making asset: themselves. No matter how much money you make from your investments, imagine how much of that will be gone in the case where you can’t work for an extended period. Worse yet, will your family be financial okay if you pass away? Remember that investments are one part of a full financial plan; if you haven’t taken care of the basics such as life insurance, critical illness insurance, and disability insurance, it’s a good idea to look into those first before setting money aside from investments right away.