Financial wellness can only be achieved through thoughtful planning and disciplined money management. I say this as someone who did not always make investing, saving, and diversity of my financial portfolio a priority. Over time, we’ve observed the ebb and flow of financial markets. Luckily, diligent investors have reaped impressive returns from Wall Street since 2009/10. For the past six years, these Wall Street Bulls have shown an upward trend benefiting many financial portfolios.
However, I must confess that I got on board this ride a little late. Tech giants like Facebook, Google, Twitter, Tesla, and Microsoft had already taken off by the time I threw my hat in the ring. Despite this, I have faith that the growth trend will persist and my portfolio will eventually get healthier. My past experiences have taught me that the savviest financial portfolios are those that reduce market risks over time; in simpler terms, practicing dollar/cost averaging is the finest way to invest in financial markets.
DON’T FEAR INVESTMENT
Instead of investing a lump sum every few months into mutual funds, single stocks, ETFs or 401(k) investments, break it down into smaller amounts and invest monthly. This method gives you a more even spread when buying equities. For example, as of June 1st, 2017, Apple Inc. (AAPL) has gone up 39% for the year, Facebook has risen by 33.52%, and Google has seen a 26.40% increase. If I invested in Google three years ago, my returns would be 77.08%, Facebook returns would be 137.98%, and Apple’s returns would be 70.08%. These tremendous growths can significantly boost your portfolio, especially if you start investing early in your career.
You must be curious about what I did with my money all that time; well, I kept it in zero-interest-bearing bank accounts. Can you believe I was charged to keep my money in their vaults? A common reason why many hesitate to invest in financial markets is the fear of market volatility. They’re afraid that a market meltdown might wipe out their entire savings. While it’s a possible scenario, remember the financial crisis that eradicated trillions of dollars from Chinese bourses when the Shanghai composite index and the Shenzhen composite index crashed in 2015/2016? Chinese GDP declined from over 7% to 6.7% as commodity demands plummeted and global bourses recoiled. However, China’s stock markets have since rebounded and today, China boasts the world’s #2 economy with robust gains. This pattern demonstrates the resilience of financial markets. Remember, the market can fall as it rises, and even a bearish market climate can offer profitable investment opportunities which are much better than keeping money in a bank account.
SHIELD YOUR INVESTMENTS THROUGH DIVERSIFIED PORTFOLIOS
Hedging is an effective way to protect your investments when certain sectors of the financial market take a downturn. For example, gold is seen as a safe haven against weaknesses in equities. In times of geopolitical uncertainty, investors tend to pull out from equity markets and invest in gold. This is also true with Japanese Yen, oil, and Treasuries.
A pro tip I received from a top Lionexo options trading broker was to distribute investments evenly amongst domestic stocks, foreign stocks, bonds, mutual funds, ETFs, and currency holdings. You might even want to take a step further and diversify with contrarian trading options, involving CFDs and other derivative trades. However, we must temper our expectations for immediate returns on investments.
THINGS TO PONDER BEFORE INVESTING
Unless you’re venturing into futures markets where leverage, margin, and high-risk are involved, you’ll need to be patient and wait for your assets to mature over time. Having cash in the bank can best act as a buffer against stock market volatility, but it won’t fare as well in a period of hyperinflation and low-interest rates. However, a balanced portfolio remains the best approach when planning for your retirement. Always remember the golden rule: Don’t put all your eggs in one basket. A calculated mix of asset classes such as indices, currencies, commodities, treasuries, and stocks is the safest bet in today’s times.
