The market will always have its natural ups and downs, but 2020 has been a true roller coaster of a year. The economy was great at the beginning of the year. Then, COVID-19 came to town and wreaked havoc. Now, businesses have opened back up and the market is rallying. We experienced a massive decline and now we’re seeing a steady rise upward, even if there are some one-day drops along the way.
When will we get back to a fully recovered economy? Will we ever get back to normal? How long will this current upward surge last? These are all good questions to ask and the answers aren’t exactly clear as of yet. There is still plenty of uncertainty ahead of us.
The simple fact is there will always be uncertainty. When the market is strong, everyone is waiting for the bubble to burst. When it is weak, we are anticipating the eventual correction and recovery. There is always something to worry about. A savvy investor must be prepared for all the ebbs and flows, while also knowing how and when to make the right moves.
We’ve spoken before about managing our investments in a down market and having a portfolio that can withstand—and even thrive—no matter what the economy throws at it. This week, we want to focus on the other side of the spectrum. How should investors take advantage of market highs? How can we turn these flows into opportunity before the next ebbs approach?
The first thing to remember is that you shouldn’t be afraid of all-time highs. If you have a good long-term investment plan, these highs should benefit you. Stocks generally go up in value over time and it’s natural to hit these peaks. Then, there are often long periods in between all-time highs. Investors don’t want to spend all their money at the market peak and then see the values drop.
A long-term investment strategy should benefit from long-term gains as long as you don’t make drastic reactions based on short-term activity. With the COVID-19 pandemic, we saw a lot of investors panic. The market was hot and then the bottom suddenly dropped out. They ended up selling when the values were at their lowest and that’s when bad things happen. Meanwhile, other investors scooped up the devalued stocks and are now seeing excellent gains with the market recovery. They knew a correction was coming, as it always eventually does.
You don’t always have to follow the old investing adage of “buy low, sell high.” You can buy in a high market as long as you intend to hold onto the investment for a long period and you see it as ultimately gaining value in the future. If you buy high and then sell low out of panic, then you are going to lose a lot of money. If you only buy low and sell high, you might experience some short-term gains. However, you are always susceptible to the roller coaster and it can be a bumpy, unpredictable ride.
Smart investors will have a long-term plan and a diversified portfolio that allows them to buy in any market conditions and see steady gains over time. You always have to pay attention to what’s happening in the market and study the trends. There will be times you need to sell certain stocks and buy others to maintain your overall growth, but the heart of your investment plan will be based on solid footing that will keep you earning more as time goes on.
If you are looking to develop and manage a successful long-term investment plan, Illumination Wealth is here to help you build a stronger financial future. From retirement planning to investment management to tax strategy, we cover all the bases and will guide you on your ultimate journey toward financial independence. Contact us today!