Do you have a winning strategy when it comes to retirement planning?
When the stock market keeps climbing and climbing, all you have to worry about is which stock will bring you higher returns. But then, somewhere around the curve, lies rough weather. The market starts fluctuating, and every expert has a different opinion about what is going to happen and what an investor should do. This is a time of great worry.
One wrong decision can lead to a complete wipeout of all your gains. So what exactly are you supposed to do?
For starters, if you think there was nothing wrong with your picks, and it is the market that is swinging wildly, then stick to your plan. This is the moment when speculative stocks are separated from fundamentally sound companies. Market volatility affects hyped up stocks much more than companies with good cash flow and P/E. If there’s nothing wrong with your stocks, then the best thing you can do is whether the market fluctuations and wait for it to stabilize.
You can expect creeping self-doubts regarding your strategy, and there is a strong urge to offload everything during the initial period of a bear market. If you unload everything, then you have no choice but to accept the loss. What you need to think about is that given some time, the market will shed its fears and start going up. Stable companies go up and down along with the market, but at the end of the day, the investor does not lose money.
The fact remains that you need to have the insight to pick good stocks in the first place.
If your purchase is taking a beating while the market is climbing, then you need to take a second look at your investing strategy. But if you are generally in tune with the market, then the best approach is one which you don’t change mid-way. Whether you go in for value investing, dollar-cost averaging, growth investing or any other mode you like, what matters is your belief in the underlying strength, irrespective of the market.
How to pinpoint the high water mark and when you should sell to make a killing is a different matter, but not getting wiped out involves a simple strategy. Think before you buy and don’t panic when the herd heads for the exits.