For those who missed the latest stock market boom, fear not. There are steps you can take to position yourself well before the next market highs arrive.
Here’s how to make sure you don’t lose the next time without taking too many risks:
Have a game plan
Let’s face it, the market is often unpredictable, but that doesn’t mean you need to be.
“Investors can, of course, avoid putting money in markets that are close to the all-time highs, thinking that they can buy the investment at a cheaper price once the market has cooled,” said Michaela McDonald, certified financial planner in personal finance. Albert app.
McDonald suggests an investment method called average dollar-cost. This essentially means investing the same amount of money on a recurring basis, regardless of what the market is doing.
“It helps you focus on what you can control, rather than the unpredictability of the market,” said McDonald.
Stay with index funds
But jumping into the movement of an action that has already had a great run may be unwise.
“The last thing you want is to buy an investment that is being traded upwards and has little room to operate,” said Leyla Morgillo, certified financial planner at Madison Financial Planning Group.
Instead, you can invest in index funds – baskets of shares that accompany a major index, like the S&P 500 – to gain some exposure to some of the most popular stocks and largest companies, while spreading risk across the broader market.
Avoid emotional investment
When a market explosion occurs, emotions can increase. But it’s not time to give in to your FOMO, or fear of losing. Instead, use it as an opportunity to assess your financial goals, assess your risk tolerance and balance your portfolio investments.
One way is to diversify your investment portfolio in a way that gives you limited exposure to the stock market so that you can benefit from market booms, but don’t risk putting all your eggs in one basket.
Other investments it should ideally be more conservative and behave differently from equity investments, and it can serve as a buffer during increasing market volatility, said Morgillo.
These investments may include shares with payment of dividends, cash, bonds and real estate.
“It can be very easy to fall into the euphoria of a stock market boom and lose sight of reality or behave irrationally,” she said. “It is always advisable to use the stock market boom to cut investments that have appreciated significantly and use it as an opportunity to rebalance back to your target investment weights.”
On a similar note, when stocks are up, it can often lead to significant growth or winning trades. But experts warn you shouldn’t let this go to your head.
Behavioral finance shows that an “overconfidence bias” in investment can result in poor investment decisions and attempts to control time in the market.
“You don’t want to allow the bull market to influence you to take more risks than you can afford,” said Morgillo.
Be prepared
Sometimes, investors may not be so lucky, noticing a boom in the stock market when it is too late. But you can still prepare for the next inevitable rally to come.
Milo Benningfield, a certified financial planner and founder of Benningfield Financial Advisors, recommends “finding out what your financial goals are, learning some investment fundamentals and putting together an investment plan.”
And as soon as you do, he says, write and persist.
“If you do that, you’re already way ahead of the game.”