How to Prepare Your Investments For A Successful 2019
November 14, 2018
Navigating the markets can be tricky, especially with volatility going on. During these times, we think a little extra research goes a long way. In case you missed it, we put together an interactive webinar for investors to learn how to prepare their investments for market movements from a seasoned investor and Voleo CEO, Thomas Beattie. Here are some key takeaways on how to prep your portfolio for a successful 2019!
In this webinar, we also discuss the role that trade wars have on market movements. Make sure to watch the video to learn about the basic economic principals that influence how trade wars affect the stock market.
Beware of the Herd Mentality
When many investors start taking their money out of the stock market, other investors have been known to do the same, and a downward trend can follow as a result of panic selling. Unfortunately, this ‘herd mentality’ can create the greatest turbulence in the market, as we’ve seen throughout history with instances such as the Dot-com Crash or the Great Recession.
While many investors can try their best to time the market, blindly predicting the future is often extremely difficult.To illustrate the point, try this simulated investing game and see if you can successfully beat the market by selling out and buying back in. Warning: it’s harder than you might think!
“Be fearful when others are greedy, and be greedy only when others are fearful” - Warren Buffet
In essence, Buffett’s statement is to buy low and sell (or don’t buy) high. A great piece of advice Beattie shares in the webinar is the importance of buying stocks based on research, not popularity. In Beattie’s perspective, some novice investors have made the mistake of buying investments that are all over mass media (think cryptocurrency in 2017 or cannabis stocks a few months ago). In these instances, investors could be buying high, rather than buying low and selling high as Buffett famously proposes.
Consider Your Position and Rebalance Accordingly
To properly prepare your portfolio, research is required. Rather than buying based on trends or intuition, it’s important to evaluate stocks on financial ratios and metrics relative to your own personal risk tolerance, goals, and intentions. Beattie suggests three ratios that could be useful for novice investors to look at when evaluating a stock are the P/E ratio, Earnings per Share, and Dividends ratios (when applicable), including how much the company pays out and how consistent the payments are.
When it comes to market corrections, smart investors tend to get into the habit of routinely re-evaluating their portfolio’s position and rebalancing as needed. If you’ve been holding a stock for awhile and see it starting to decline, the decline is not necessarily indicative of the right time to sell; however, the stock may no longer play the desired role in your portfolio as it had previously. If this appears to be the case, it could be a good time to re-evaluate and rebalance your portfolio accordingly.
Diversification is Key (Especially in Market Corrections)
Diversification is a principal financial concept that investors should understand when it comes to creating a comprehensive portfolio. While there are particular sectors you might feel more comfortable investing in - such as tech or pharma - it’s important to understand that stocks from the same sector will be affected similarly during market corrections. This is where the role of diversification comes in.
To increase your portfolio’s diversification, Beattie outlines a few of many investment options you have. He mentions investigating ETFs to see if they might be a good fit for your investment assortment; further, a healthy mix of growth and income stocks could be used to balance your portfolio. Evidently, the right investments to diversify with depends on your current mix of investments, investing strategy, and risk tolerance.
Setting Yourself Up For Success
To prep a successful portfolio, use the resources available to you! Stock watchlists, for example, are a great way to visualize and strategize your investment decisions. Blogs, podcasts, and webinars are also valuable resources for building your financial literacy to better navigate market movements (check out this one on 50 free resources you can use to learn more about investing and finance). If you’re watching this webinar, you’re already taking a great step towards preparing your portfolio for success. Going one step further, join our newsletter to keep up-to-date on the latest webinars and financial literacy resources. Here’s to working hard in 2019!