Ways to survive a difficult investing market
When the investing market is volatile many investors may panic and react in ways that are not beneficial to them in the long term.Knowing how to avoid these investing mistakes is the key to long term success in wealth building.Investors should understand that "the market" tends to react and the key to successfully navigating it is to know how and when to react back or not.So if you are an investor concerned about the current economic climate here are some ways to survive a difficult investing market-
- Never borrow money that you need to invest-It is crucial for investors to understand that the market can remain in flux longer then you can wait it out.If you have to borrow money in order to maintain your investments you may find yourself having to liquidate your investments for repayment of your loan long before they pay off.Successful investing is a long-term commitment.Often times people borrow money to invest and cannot wait the time they need and sadly many times they are dealing with a company that would appear to have a better than average probability of trading at substantially higher prices five years from now. Yet, if you have to borrow money, you most likely will have been forced to sell out long before the stocks began to rise. To add insult to injury, not only would have been correct, you will have suffered the pain of losing large amounts of money because your timing was not perfect.
- Do not invest any money that you will need for the next 5-7 years-Trying to figure out the specific time when gains will happen in the market is virtually impossible.However if you want to buy a house, prepare for retirement, send yourself or your children to school, or expect to have large medical bills over the next five years, stocks are not an appropriate place for you to invest your money. In the long-run, stocks have proven to be the surest path to wealth for those who are disciplined and rational. In the short-run, stocks can be fluctuating like a roller coaster. Using money that you know you will need in the next few years is not prudent or financially sound.
- Do not check the stocks daily-Once you have a plan in place you should not be checking the stocks daily.If you do dollar cost average, reinvest your dividends, max out your 401(k), and contribute to a Traditional IRA or Roth IRA you are well on your way.If your investments are low cost and diversified you simply need to sit back and let the plan work for you.Over the past several decades, a plan such as this has proven to be hugely successful, resulting in millions of dollars in wealth for those who follow it. If you have the patience, will power, and discipline to engage in such an investing plan, there is no need to make yourself sick by looking at stock prices daily. Riding out the fluctuations is key and when things recover you will have that much invested for dividends and earnings.
- Try not to rely on one source of income-Diversification is important in all things. A big danger to your investments is the risk that you will find yourself unable to pay your day-to-day bills and you will be forced to sell assets to fund your living expenses. The most sensible way to avoid this is to have multiple sources of income that are non-correlated. In other words, your income is not diversified if it is coming from only one source.Making sure that you income sources have the least amount of risk will help protect you in a difficult investing market.