WHEN GOOD INVESTING GOES BAD in Software

Generation QR Code in Software WHEN GOOD INVESTING GOES BAD

for surviving bear markets Don t look Don t look at your statements, don t look at how the markets are doing on a daily basis, and try to concentrate on other things I know that is tough I have many clients who are guilty of watching and charting their investments on a daily basis These same people want to get out of their investments when the market goes down and then reinvest when the market begins to go back up As I ve said before, you don t know when this will happen and by pulling out of the market, you may miss out on potential growth before you reenter it (Again, please refer to Table 81 for a comparison of what happens when you miss some of the market s best-performing days)

Special note: Don t be afraid to sell a mutual fund, stock, or other investment that is not performing very well and hasn t been performing very well Sometimes investments don t come back from their poor performance, and sometimes they will However, there are occasions when you need to evaluate your portfolio and cut your losses

Another strategy designed to combat the unknown elements of the stock market is called dollar-cost averaging, or DCA When we discussed systematically investing over a period of time, we touched on DCA Although we didn t mention it specifically, DCA can provide a good means of getting your feet wet in the market without the potential headache of jumping in headfirst The tenet of DCA is simple: By investing systematically over a long period of time, you will normally see that you have a lower average cost per share, which can help increase your overall return Because no one knows from one day to the next what the market is going to do, investing over several months rather than in one lump sum amount may be a better idea for those investors who are a little more squeamish about investing, or who have a lower risk tolerance Employing DCA also means that you may wind up purchasing shares

at their 52-week high, but you may also buy shares at their all-time low Over time, the cost of the shares averages out, so that you are neither paying top dollar, nor are you paying bargain basement prices But employing the DCA method doesn t guarantee a profit, nor will it insure you against a loss Dollar-cost averaging is generally used for mutual funds, but may also be used within the subaccounts of annuities, which we discussed in 6 Let s assume that you want to invest a total of $50,000 in the XYZ Growth Fund, but you don t want to do it all at one time Rather, you wish to spread out your investment because you don t know what the market is going to do Therefore, you decide you want to invest $5000 per month for the next 10 months to make up your entire investment By doing this, you will be purchasing shares at, presumably, 10 different prices, which could lower your average price per share, and thus, increase your potential for making a profit from this fund (See Figure 81) Looking at Figure 81, which demonstrates a hypothetical situation, as the price per share fluctuates over time, the investor is able to purchase shares at a variety of different prices, which then equal his average price per share Notice that the hypothetical purchase prices run the gamut over the time frame This strategy helps decrease the volatility of investing in a single security by investing over time, instead of in a lump sum Figure 82 provides some more examples on dollar-cost averaging For investors who wish to invest in a lump sum, they need to be aware that they may wind up putting their money in at the height of the market, or they may be lucky enough to get in when the market is at a bottom point This is not to say that one way is better than the other That choice is up to individual investors and their levels of risk tolerance If you, the investor, believe that the market will be going back up at the time you are ready to invest, then a lump sum investment may be best However, if you are unsure about which way the market will go, then perhaps using DCA is the best idea Essentially, DCA is best for investors who have the cash flow to invest a set amount at regular intervals and aren t prone to try and decide whether the market is going to go up or go down This strategy also works the best for those who like to invest and hold a position for a