Here’s another basic investing guide incite. Speculation is not a dirty word … but real investment opportunities are difficult to identify. The odds are always against the inexperienced investor. So, here’s how to make money in the stock market without giving it all back when a bear market (falling stock prices) claws Wall Street.
Give up on searching for stock market investment opportunities (bargains), and focus on market timing. Keep your market timing simple and general in nature by following the Dow Jones Industrial Average (the DOW) on a weekly basis.
Do not stay 100% invested in stocks in your brokerage account. As other investors can attest to, a bear market can wipe out years of market gains swiftly. If you lose 50% you must then double your money to just get back to even. Here’s the simple way to handle market timing.
Keep about half of your funds in stocks that track the stock market in general with the other half in your cash account. For example, SPY tracks the S&P 500 Index and DIA tracks the DOW. This is your neutral position.
As long as the stock market is stable or rising stay only 50% invested in stocks. When a bear market is in the news (after a 20% drop in the DOW) move more money into stocks. As stocks continue to fall escalate your stock buying.
Right up front you need to have a target and the courage of your convictions. For example, you must be willing to buy stocks as the market falls with a target of being 90% invested if and when the market falls 50%.
If you can not force yourself to buy stocks when others are selling, stock market investing is not for you.
On the flip side, you need to start selling stocks after a large run up, to get back to your neutral position of 50%. Market timing is not a science, it’s an art that requires your attention.
If you really want to succeed as a long-term investor concentrate on maintaining a balanced portfolio of stocks, bonds, cash equivalents and alternative investments. Play the stock market as a hobby.