When people think about investments, they mostly think about stocks and bonds—this is usually because these are the most common assets types held by individuals. Just because these are the most common investments doesn’t necessarily mean they are the best in all market environments. There are many other asset types that you should consider when you’re allocating your investment capital.
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The reason we invest in anything is that we believe we can increase our savings. For many years, investors have been told that the key to riches is to buy low and sell high. I believe that is foolish advice, and I’m here to put in my two cents.
The main problem is that it lowers the overall return on investment, and as a result, reduces certainty more.
Recently, I have seen many articles stating that the stock market will drop by 5%-20% by the end of the year. Despite these many predictions by pundits, analysts, and economists, no one knows the market’s future direction—even if they guessed right previously. I can say this with certainty because the world doesn’t have a trillionaire.
In my previous report, I said that I believed the Fed “will not touch interest rates for the foreseeable future, which means that 2021 will likely be a year of higher-than-usual inflation.”
Since that report, the Fed has made some announcements which make me think that my previous statement will be the understatement of the year!
There are many novice investors jumping into the markets right now. And why not? Almost all investment classes have been jumping in value over the past several years. In the next few years, you’re going to see market corrections and shifts away from meme stocks—that’s when you’ll see the difference between novice and savvy investors.
Most people are afraid of investing because they don’t understand it. They tend to sit on the sidelines until they read about novice investors who become overnight millionaires, and then they jump in for fear of missing out (FOMO) without any training or understanding.
I often read articles and hear people talk about how they will get rich by timing the market. On its face, it is very appealing because of the many individuals out there with ‘proven methods’ of getting rich by market timing. Some people do indeed make a lot of money, but the contrary is more real for most individuals.
I do not believe that Modern Portfolio Theory can adequately address the nuances found in the current investing environment—it is anything but modern! To combat the low-interest-rate environment that we find ourselves in, I suggest looking at other investment vehicles that perform like bonds but with higher return potential.
I am a do-it-yourselfer. I first started trading stocks in 2008—right before the stock market lost almost half of its value. I put all my savings in the stock market and I found my personal portfolio down by 70% within the first year of trading in stocks.
Sometimes I think the reasons investors buy or sell stocks in their portfolios are so silly. Lately, we’ve been hearing that if so-and-so is President, then I’m going to sell/buy. Today, I’m going to address some of the underlying reasons that people do this and why it is a bad idea.
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