"In a world of GLASS CEILING SMASHERS, [Golden Girl Finance Founders] Misner and McDonald are two blondes investing in total architectural overhaul." - Dolce Vita Magazine

Investing

Stocks at record highs: time to buy?

August 3rd, 2016 by

How to avoid the market timing trap

 
 
 

In a post-Brexit bounce over the past few weeks, the major North American stock markets have touched record highs. That blindsided many small investors who had bought in to the end-of-the-world-style of media hype right after the Brexit vote and jumped out of their equity holdings. Of course, they pretty much missed the almost immediate rally, which recovered the losses and sent markets surging to new highs. So is now the time to buy stocks again? Actually, that’s the wrong question to ask.

The right question

The right question is not whether now is the right time to put money into stocks; rather, it is, “If your portfolio doesn’t already include stocks as part of an asset allocation strategy, why not?”

In fact, anytime is the right time to get into stocks. You should always have some allocation to equities, and if you don’t, you’re doing something wrong. You should also always have bond holdings. And cash. In other words, you should have a plan.

Proper asset allocation is one of the keys to investing success. Basically, this means that you determine what kind of investor you are, what your financial objectives are, how much risk you can really stand, and then create a portfolio of investments that reflects that profile.

You might, for example, be a growth investor with a more aggressive outlook and willingness to take on more risk, and allocate, say, 10% of your portfolio to cash, 25% to fixed income, and 65% to stocks. And you’ll stick to roughly this allocation through thick and thin. You’ll always have a largeish portion of your holdings in equities, but you’ll also have bonds to help mitigate risk and provide income, while your cash gives you flexibility.

What about bear markets and corrections?

The S&P/TSX Composite Index recently went through a correction – that’s when the market falls 10% or more from its recent high before recovering again. It’s bound to happen again. But no one knows exactly when or by how much. Trying to guess market tops and bottoms is called “market timing” and no one ever gets it right, except by sheer accident.

When you have a planned asset allocation strategy that you stick to, you’ll feel more comfortable weathering the inevitable stock market downturns. Yes, the equity portion of your portfolio will plunge right along with the market. But your bond holdings are likely to soar, offsetting losses in equities. That’s called mitigating risk.

And that’s why I tell clients they should be in stocks, bonds, and cash at all times, instead of switching in and out of assets at random based on the headline of the day. It’s a matter of degree – allocating your asset mix according to your objectives and tolerance for risk. The market hits a record high? It plunges 10%? So what? Investing is a long-term business, and you’ll have a much greater chance of success in the long term if you have a plan…and stick to it.

 
0 Comments
 
Feb 25 2017 9:51am
 
 
 
 

Business - Get Listed

Golden Girl Finance was designed for women to more effectively connect with the financial services community, national brands and local businesses of all types - supporting entrepreneurs, innovators and thought leaders. It's the modern way to engage with financially savvy females. Best of all, it's simple, easy to use, and your listing is completely free.

Create your profile and start engaging with the female demographic today.

Join Now →

goldengirlfinance.com

Golden Girl Finance is a leader in financial digital media - the modern woman's guide to finance - making the discussion of money and investing real, relevant and relatable (and shockingly entertaining). With a voice that reaches millions of women across digital, print and television platforms, our goal is to engage, educate and empower women of all ages to take charge of their finances. We do not invest on readers' behalves nor offer personal advice. It is this unbiased and innovative financial literacy approach that our community values and trusts.

goldengirlfinance.com Worldwide:

Canada USA
 
A financial voice for women. Get Started Now.