11 Kick-Ass Investing Hacks To Crush The Markets Now & Beyond COVID-19.
The coronavirus-induced market bear wreaked havoc on 401ks, IRAs and other investments accounts worldwide in March. However, some sectors have drastically recovered from their March lows. This recovery has been quicker than most economists and financial pundits had anticipated. Both the S&P 500 (+8.58% YTD) and the tech-heavy Nasdaq Composite Index (+30.35% YTD) have posted multiple closing records. While some investors fled the markets in droves during the March volatility, others stood their ground outright and fought the bear. Investors who realigned their portfolios have seen solid stock market returns. Given the ongoing economic uncertainty, we present a few investing tips to help you crush the markets now and well beyond the coronavirus pandemic.
1. Don't expect to get rich overnight.
Investing in the stock market is one of the best ways to amass massive wealth. But investing won't make you rich overnight. Unfortunately, many people have unrealistic expectations about investing money. Such expectations can lead to disappointment, and cause you to abandon investing altogether. You should invest consistently and exercise patience to help you build sustainable wealth.
"Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas."Paul Samuelson, American economist
2. Don't chase yields.
Whether you are a growth or a dividend investor, chasing yields is an investing mistake that can eat away your capital. Oftentimes, an investor invests in a stock or mutual fund solely based on past returns or high dividend yields. Sadly, this investing mistake can be a hindrance to your portfolio's returns. Always keep in mind that past performance does not guarantee future results. If you're struggling to choose securities for your portfolio, check out how to evaluate and select mutual funds.
3. Don't cut your winners too soon and your losers too late.
Holding on to your winners long and cutting your losers fast is a well-preached investment strategy. This strategy can be risky. It should be a balanced and individualistic decision. How high you should let your winners jump or how soon you should part ways with your losers to preserve capital is a decision only you can make. Your winners of today may become your losers of tomorrow, and vice versa. An effective way to sell your losers quickly or preserve your gains is through trailing stop loss orders.
4. Don't try to time the markets.
Don't be a fool; don't try to time the stock market. No one can. Trying to predict the right time to enter or exit the stock market can lead to costly and emotional investing decisions. It's a game you cannot win. There are too many unpredictable forces or events that can bring wild swings to the market at any given moment. Timing the markets won't make you rich; time in the markets will. The best thing you can do is to invest consistently. Investments that are held over the long-term almost always outperform short-term ones.
5. Don't listen to the naysayers and "experts".
Investing is inherently volatile. Obsession with short-term market movements and volatility can be a portfolio killer. If you are a long-term investor, focus and discipline are your best friend. During the early weeks of the stock market rally and recovery following the coronavirus pandemic, many investors disinvested from the stock market and stayed on the sidelines. The idea was to protect whatever little profit, as many investors did not trust the rally. The so-called experts and pundits kept alluding to a nineties-style bubble. Those who heeded the constant doom and gloom preachings turned out to be some of the biggest losers! If you have a strong investing objective and strategy, stick to your plan. Ignore the short-term noise, naysayers and experts. Remember: nobody knows what the stock market will do from one minute to the next--not you, not the experts.
"The individual investor should act consistently as an investor and not as a speculator."Ben Graham, American investor
6. Don't buy the "hot" new stock just because everybody else is buying it.
Jumping on the latest hot stock because everybody else is buying it is one of the dumbest investing decisions you can make. Sure, the odds may be stacked in your favor and you may win big. But if the only reason you invest in a stock is for the fear of missing out on the current gains, you will set yourself up for investing failure when the stock implodes. You must always take a close look at a company's entire bottom line or fundamentals (e.g. debt, earnings, among other things) before investing in the stock. According to Warren Buffet, "Never invest in a business you cannot understand."
[Recommended: Top stocks to buy right now.]
7. Don't invest in funds with high expense ratios, unless...
As an investor, your investing goal should be twofold: minimize cost and maximize returns. Investing in mutual funds with high expense ratios can put a dent in your investment returns over time. Passively-managed mutual funds have lower expense ratios than active funds. There are times when paying the extra fees for active management may make sense. But if your active funds continue to underperform their passively-managed counterparts, you may have to dump those funds.
8. Don't fail to diversify your investments.
Diversification is an investing strategy of allocating money to different asset classes or sectors to minimize financial loss. For example, if you invest your money in only one asset class or sector and that sector suffers a financial downturn, your portfolio could pay a big financial price. Conversely, if you spread your money across different asset classes and one sector falters, the other assets in your portfolio may protect your investments from volatility and risk.
9. Don't duplicate your investments.
Don't confuse duplication with diversification. Portfolio duplication is a mistake that young investors often make. It is the process of investing in equities from the same sector or asset class. For example, having two large-cap mutual funds or exchange-traded funds with similar composition in your portfolio is duplication. Also, having multiple stocks from the same sector, say the technology sector, can be a bad investing move. Such a strategy can diminish your returns. To prevent portfolio duplication: 1) keep things simple; 2) know the category or asset classes that comprise your portfolio; 3) be mindful of what you invest in.
10. Don't hire a robo-advisor.
Robo-advisors are digital platforms that use computer algorithms to automate investing. These platforms enable people to invest with the use of a simple app. After entering a set of information during account setup, the robo-advisor will provide you with an investment portfolio. Oftentimes, that portfolio is composed of a few low-cost exchange-traded funds. If you are new to investing, a robo-advisor may make sense for you. But if you already have a handle on investing and want to avoid paying management fees, you shouldn't hire a robo-advisor. You should consider incorporting stocks in your portfolio to maximize your returns and outperform your roboadvisor.
[Related: 4 reasons why you should fire your roboadvisor.]
11. Don't borrow or withdraw money from your IRA or 401k.
Unless you absolutely must, don't borrow or withdraw money from your retirement accounts! Life is unpredictable. You can never predict when the next financial emergency will strike. You may be tempted to withdraw or borrow money from your retirement account during periods of financial hardships. But if you can avoid it or resist the urge, you'll set yourself up for maximum financial rewards. The longer your money stays invested, the greater the financial returns. Consider setting up an emergency fund to avoid tapping prematurely into your 401k or IRA.
The bottom line
The reality is nobody knows how long the coronavirus pandemic will last. But you can take steps to set your portfolio up to outlast the pandemic. Ignore stock market volatility and stay the course. Don't time the markets. Invest in high-quality stocks. Start with just a few bucks. Don't wait until you have a lot of money to start investing. Expect to make mistakes; every investor does. Learn from your mistakes. Above all, invest for the long term. Historically, stock market peaks (gains) always prevail over valleys (losses) in the long-term.