How can I tell if a market downturn is short or long term?

For most investors, losing their hard earned money investing in the stock market is not an option. If you simply don't have the patience and your risk tolerance is low, then certainly the stock market may not be right for you. You can consider other investment options with fewer risks at least until you've done some personal research on the whole market performance of a given company. One option for minimizing investment fears is to invest in low cost market funds and hold on to them and making a little effort in buying and selling stocks according to the fluctuation of the market. In other words, your best choice is to invest in low risk mutual funds and maintain your investment plan no matter which way the market is moving because you know that it will move in a positive direction in the long run.

Investing in stocks is not like gambling. Buying a share of stock is like being part of owner in a company. It entitles the shareholder to claim on the assets as well as a fraction of the profits that the company generates. Because the outlook for business circumstances is constantly changing, and so are the future earnings of the company. This is why stock prices fluctuate.

After working hard for several years to save money for something big that you always wanted like a house, it would be very ashamed to see your savings going down by let's say 30 percent, especially around a time where that money would be most needed. This loss is simply because of an unexpected downturn in the stock or bond market. Since most people can't consistently predict such a downturn, it's probably best and safest to invest your money in long term savings. Most investors who focus on long term investments usually enjoy positive results.

Knowing what your investment plans are, the level of risk you are willing to take and the time frame in which you want to invest will assist you in creating a goal best suited to your needs. Before you invest, you need to think about your own personal financial goals. Think about the different reasons why you want to invest. Are you planning for your retirement? Are you saving for something important like a down payment for a house? Whatever your goals, you need to have a plan to help you fulfill those goals. Your goals should also include a time frame in which you anticipate to attain this financial desire.

Now, how much risk are you willing to risk? If you know your level of risk tolerance and invest appropriately, you are less likely to fear when markets fluctuate. Once you have established your investment goals, now try to maintain them. Come up with realistic plans that you intend to achieve with focus and effort. If you simply don't have any idea yet about the type of investment you want to get into, now may be the perfect time to think of one. You can do it yourself or hire a professional accountant or broker to help you get started.

Remember to diversify your portfolio to help reduce your overall risk in case one investment takes a downturn.You can diversify your investments by category, industry, sector, region or asset for a well balanced portfolio. Make wise choices to help you maximize your returns while staying within your risk tolerance and your expectations for returns. Invest regularly, especially if the unit value is low. This will allow you to buy more units at a low price to sell them later when they go up in price making you a little profit. Stay with your investment plans and always be realistic in your expectations. Despite up and down fluctuations, you are usually better off holding on to your investments long term. Keeping your investment as is helps you from having to pay capital gains taxes on investments you sell.