COVID-19, dropping oil prices, and fear of the unknown caused one of the biggest drops in the stock market in U.S. history. On March 9th, the Dow Jones fell 2,013.76 points. At a 7.79% drop, it proved to be the worst single-day point drop ever for the U.S. market. What does this mean for you? You may see this as a golden opportunity to make some money, but make sure to be cautious and look before you leap. Here are six tips to be aware of prior to making the leap.
1. Don’t Try to Outsmart the Market
Do not try to outsmart the market, it never succeeds. The worst mistake you can make as an investor in turbulent times like these is to think you are smarter than the market. Unless if your name is Warren Buffett you may fail miserably.
2. Don’t Risk it All
It may appear like a one-time shot, but you never want to invest the entirety of your savings. If you are going to dump some serious money in the stock market, invest 10-15% of your savings at maximum. If that recession does hit, you won’t lose everything. No matter what, you still want to have enough in reserve to live comfortably.
3. Players Fail
Be aware that most “players” (day traders) end up losing money in the stock market. As a full-service accounting firm, we see it all. I have seen plenty of tax returns from day traders that show overall losses. Yes, they may score on occasion, but overall, they end up with a loss.
4. Play Long Term
Playing for the long-term means investing with the idea of holding a stock for at least a year. You are in for the long haul, instead of worrying about the daily ups and downs. Many analysts are recommending that investors wait this out, instead of selling, and focus on the long-term gain that will inevitably follow as the market rises back up. This is why you should play for the long term. Buy now and stick with it!
5. Index Funds or ETFs are your Safest Bet
Index funds or ETFs are your best choice! It gives you a wide variety of stocks, diversifications which in turn will give a lower risk.
6. Choose Stable Companies
If you have decided to invest in individual stocks, choose stable companies. You want to select companies that are going to keep chugging along, i.e., Microsoft, Walmart, Apple, companies that will perform well in the long term. Don’t choose startups or penny stocks. Those are volatile and risky. Avoid the “get rich quick” stocks.
Disclaimer, I am not a stock market expert. I am merely sharing my thoughts with you based on my experience and the results I see at year-end.