Whether investing in a 401k or one our own we should be aware of the following stock market 101 3 words of wisdom.
Over the past 30 years the major stock market indexes such as the S&P 500 and the Dow Jones Industrial Average have grown over 1000%. The question on all investors’ minds is what will the next 30 years bring. Are we going to experience the stagnation of a stock market that in 1929 broke 370 (Dow Jones Industrial Average) and took until the mid 1950s to break through that level again, or are we going to rocket ahead?
Wisdom #1 – Timing is Everything – In late 2008 and early 2009 we started to hear of organizations that took bets against the real estate industry prior to the bubble popping and made fortunes as a result. What we don’t hear about are organizations that were too early on predicted real estate collapse. For those organizations that took these bets against the real estate market too early more likely were closed out of their positions or went broke.
We can go broke from being right too early. Being right with our long-term outlook on the stock market is key, but when we invest to act on this outlook, timing is the most important factor to profiting from it.
Wisdom #2 – Stay Focused and Stick with your Plan – Over the years I have constantly been asked about whether recent events have changed my current outlook. Typically this question comes from views expressed in the financial media. When the market appears bearish, we should expect the media to add fuel to the fire and give outlooks that predict the end of days. When the market appears Bullish, we should expect the media to shoot for the stars.
When we make an investment decision, we cannot allow the media to change that decision. The media will always challenge our investment decisions and we have to remember why we made that decision in the first place. Unfortunately we will be wrong from time to time and that is to be expected, but if our decisions are objective and we have a method that has proven reliable over time, sticking with our program will maximize its results and keep the emotional media out of it.
Wisdom #3 – Don’t be Afraid to Take a Profit – This is the simplest and most abused piece of wisdom of them all. Never get too greedy. The movie “Wall Street” made the saying “greed is good” famous and greed is good but too much of it can break us.
We are all guilty of watching an investment grow well beyond what we ever expected and not profiting from it because we started to have visions of dollar signs. When investments give us fruit we need to pick it before it goes bad.