It’s always difficult predicting market tops. And you can’t necessarily assume things will happen similar and have the same effects as in the past with respect to the Fed, fiscal stimulus, and such.
I mean, in the previous recession, the housing market got crushed. This time the housing market sales and prices jumped. A lot. And throughout the entire recession. I mean who could have predicted that?
However, it’s a well established fact that people often lose more money anticipating market drops than from the actual market drops themselves. And most of the gains you’ll ever receive often happens right before major market tops. So, you kind of don’t want to miss out on those.
So, overall, I think people probably should keep investing but tighten their rules a bit, make less risky trades, and have a good cushion on of cash on hand to take advantage of significant drops.
Discipline, discipline, discipline. That is what’s key. Define your rules up front, adjust (tighten, loosen, etc.) them as needed, and stick with them. I frequently create rules for myself as an investor to guide and curb risk taking. For example, here are one of my current more macro market rules:
“BUY NEW STOCKS UP TO 15% OF INVESTMENT ACCOUNT. THEN STICK TO ONLY BUYING MORE OF THE EXISTING STOCKS UNTIL THE S&P 500 INDEX (SPX) DROPS SIGNIFICANTLY AND I ASSIGN IT A ‘STRONG BUY’ RATING. AT THAT POINT, I WILL START SCREENING AND PERHAPS CONSIDERING TO BUY NEW STOCKS.”
One of my more micro, individual stock rules are:
“AFTER BUYING INITIAL SHARES OF A STOCK, WAIT FOR AT LEAST A 10% DROP BEFORE CONSIDERING BUYING MORE.”
The above rules work pretty well for me as a lower risk investor. However, they are different today than they were years ago when I was a higher risk investor. And I adjust my rules based on whatever happens.
For example, when the markets started dropping back in February-March 2020, I had a pre-planned rule of:
“BUY 10% OF MY INVESTMENT ACCOUNT WHEN THE SPX DROPS 10%, BUY 2% MORE FOR EVERY SPX DROP OF 1% BEYOND THAT UNTIL SPX DROPS 15%, BUY 3% MORE FOR EVERY SPX DROP OF 1% BEYOND THAT UNTIL SPX DROPS 20%, AND BUY 4% MORE FOR EVERY SPX DROP OF 1% BEYOND THAT.”And that worked like a charm!I also have rules for selling.
So, do yourself a favor and come up with your investment rules beforehand, make adjustments as needed, and stick with them – especially during periods of chaos and volatility. Regarding what most concerns me going forward, well, I wrote a post recently about that: https://brighterdayslifecoaching.com/storm-clouds-on-the-horizon-the-bond-markets-and-the-low-risk-safe-haven-facade/
You can learn about all of my investing techniques via my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books where you can learn the “end to end” process to investing and gain key investing insights and skills (https://brighterdayslifecoaching.com/published-books…/).
Also, you can read all about my stock market activities here: https://brighterdayslifecoaching.com/stock-market-activities/
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