The more I experience and research in the investing world, the more I’m turned off by those who make concrete predictions. This is disheartening news for investors that want to be able to put their trust in the hands of someone else that they think has a crystal ball and knows exactly what is going to happen tomorrow. The truth is, no one knows exactly what is going to happen for everyone to perfectly time their exit point to maximize their profits or to precisely time the bottom for their entrance. This is especially bad news for individuals who are new to investing because all of us have this optimistic hope that we can put our faith in someone who is going to perfectly time and maneuver us in and out of the market making us all rich.
My goal for this article is to bring everyone up to speed. The reality is, bottom and top calling are speculative. There is no way to know, just because we are at all-time-highs in the stock market, that we won’t see it run another 20-50%. There are of course, ways to be logical about it and use common sense to maximize your returns on investments. The truth is, my most fundamental core values will be discussed in this article when it comes to long-term wealth. Unfortunately, many people pass up on investing and say things like, “the stock market isn’t for me,” or “I’ve lost money before in the stock market and I’m not doing that again.” My hope is that none of my readers adopt this mindset and miss out on life changing SMALL decisions.
Top Callers & Bottom Callers
First of all, lets address the top callers and bottom callers. Being in the investment world and meeting some of the top gurus face-to-face, one thing I can say is that they are all human and in many cases, guessing when it comes to making a time sensitive prediction. The best advice I could give is to invest in assets and allow the government to inflate your wealth for decades into your future.
The scariest time to buy a stock is today simply for the fact that we don’t know what will happen tomorrow and into the short-term. Conceptually, it is scary buying right now in 2014 because of current state of the exuberant stock market, but I don’t believe people in 20 or 30 years are going to be stressing about the stocks they bought in 2014 because returns over that amount of time significantly compensate for interim corrections.
The Middle Approach
There is a middle road approach however, that successful people use to hedge against inflation and compound their wealth leveraging the time that is on their side. First of all, using common sense will help you make more money over the long-term. This is going to blow your mind–so be ready for it. Buy more when stocks are down and buy less when stocks are up. I know this sounds basic, but I would suggest this strategy for anyone considering what to do right now while the stock market is soaring.
A tentative strategy for someone that is waiting for a correction, but doesn’t want to miss out on imminent returns, would be to invest 50% of what you could invest now and put the rest in when the next 10%-20% correction occurs. Keep in mind that timing the bottom of that correction will be nearly impossible, so don’t beat yourself up if you are off when you attempt it. Regardless, buying after a pullback is a sure way to ensure your money was not all put in at a periodic top.
The truth is, most people own a stock for less than six months. In that amount of time, volatility can be significant and they might be down on their investment over that time period. This typically leads to panic selling and a paradigm that the stock market doesn’t work. This is the precise reason why many of your friends tell you they aren’t fans of the stock market, and miss out on the big up years such as 2013 and into 2014. My tax preparer told me that 90% of the people he sees walk into his office each year that day trade, actually lose money; it’s the people that buy and hold that come out ahead most of the time.
I’ve said this time-and-time again, it’s going to be the people that own assets that get ahead and see their savings compound. Allow me to use a housing example. Over the last year, in my area of Southern California, housing prices rose anywhere between 30-40%. People who owned property were the ones that experienced the benefit of the price appreciation, for everyone else, the cost of living just got substantially higher without a pay raise. This is where the rubber meets the road in terms of the middle and poor class getting crushed while the rich get richer.
Someone that wants to purchase property in 2014 is going to have to work much harder than someone who owned it when it was priced much lower. This is the case with people paying higher gas prices and not sharing in the profits with the oil companies. This is also similar to rising food prices and consumers not profit sharing with the food industry. The ones who control these assets prosper while the ones who consume get left behind.
“In a time where the government trend is to print and spend,
you cannot afford to not own assets if you don’t want to go down with the ship.”
A disclaimer for anyone who might be having this very thought; don’t feel like you need to be a part of every investment and every opportunity. Do what you can and be glad that your savings are thriving in a world of inflation. The stock market is a great way to hedge against the day-to-day rising costs to live.
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Be a strong-minded thinker and have convictions that your children and grandchildren will thank you for!
Chief Editor at CrushTheStreet.com