 |
Tags: finance, stocks, invest in the recession hit stock market
 At the same party I talked about yesterday someone bought up the subject of investing—specifically focused on investing in stocks, especially in today’s volatile and recession hit stock market. The discussion focused on how to tackle investing there now that it has been damaged by the current economic downturn. When you invest in the recession hit stock market you will get a lot of people telling you two, three, sometimes even four different things.
There are investors that become more conservative as the markets fall. This has been a typical response as investors become risk averse because of the uncertainty of the stock market. However, the investment industry argues to the contrary. They say that being conservative—to wit being on the defensive—will hurt you in the long run.
advertisement
Their reasoning is that since the stock market operates in cycles investing when things are down will create greater wealth when it goes on the upswing again. They also argue that since people live longer, often 20 years or more after retirement, stocks will protect you from the effects of inflation and will outpace most investments such that your savings will be just fine.
Not so according to a report that was co-authored by Robert F. Stambaugh, a finance professor at the University of Pennsylvania and mentioned in the New York Times. According to the report, most investment research only looked at the short term market swings and does not factor in the fact that the stock market’s average gain over time is also subject to change.
What this means in a nutshell is that if you are going to be losing a lot of money get out of the stock market. But for some, now may be the best time to buy into companies at rock bottom sale prices. Their motto is not to stop investing but to keep investing in company shares that are being offered at or near historically low valuations.
But with the way things are in this country where else can one go. Well there are those that say to look at international stocks. However, I will give a warning should you go that route. As I cautioned my friends during the party, the international stock market may be experiencing more losses than what we’re feeling at home so that instead of protecting your investments you may wind up losing a lot more.
In that case you can always go to the old standby which is investing in corporate bonds. After all, corporate bonds offer high interest rates. However, don’t forget the risk involved. There’s a chance the company you bought the bond from will become bankrupt and go out of business even before the bond matures.
You’ll be left holding a piece of paper and out your money. And unfortunately a bond is not easily liquidated unlike shares—that means you have to keep it regardless of what happens to the company who issued it. If you don’t like corporate bonds you can always invest in treasury bills and bonds.
However, it seems everyone is thinking the same way so with so many investors buying into these investment instruments, interest rates have plummeted to zero. And when you finally run out of options, like I stated earlier, you can always get out of the stock market by liquefying your investments for cash.
And even that doesn’t satisfy investment strategists. They argue that if you do that you will be locking in all the losses that you’ve incurred and feel the effects of inflation and taxes as well. Follow any of the ways I mentioned but more importantly consider carefully whether you should continue to invest/hold or sell your portfolio.
I recommend re-evaluating your portfolio taking into account your situation, the market’s, and your holdings. Ultimately, you are the only one who can decide since after all, you’re the one bearing the risks of your money.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
Share this article
You may reprint this article in its entirety on your web site, newsletter or ezine, providing you leave the About the author sections intact. You may not alter the contents.
|
|
