Recent market setbacks and price volatility have caused many people to reconsider their investment strategies. If you believe the market is heading for another big crash, you might be tempted to pull all your money from the stock market and invest it elsewhere. This article will touch on the changes in market trends and how resources from Morningstar, Vanguard, and U.S. Money Reserve can lead you to smarter investments.
The current state of the market and the crash of 2007–2008
For several years now, many analysts have been pointing to signs that the financial market is headed for another crash. In 2011, Standard & Poor’s reduced the U.S. credit rating from AAA to AA+. That was the first time the government was given a rating below AAA, which began to decrease overall trust in the U.S. economy. In 2015, the slowdown of economic growth in China caused stock prices to fall more than 12%. Events like Brexit and the 2016 U.S. presidential election have caused market instability as well.
Many of the above-mentioned factors have been named as indicators of stock market crashes before, and they may be indicative of future trends. However, when it comes to serious market crashes in the U.S. since 1929, few people have been able to predict exactly when the market would crash or recover. In fact, the market behaves so irrationally at times that crashes and recoveries have been falsely predicted many times.
If we look at the financial crisis of 2007–2008, the S&P 500 declined nearly 60% from October 2007 to March 2009. In May 2009, stocks rose over 12%, tempting investors with a possible market recovery. Unfortunately, this was only a temporary recovery, followed by a strong bear market.
In hindsight, it’s easy to see when the real upturn began, but at the time few people could see it clearly. A lot of predictions were made during this time, but few were accurate. Even when the market did turn around for good in the second half of 2009, there was no way of knowing at the time if that was a real recovery or just another spike—especially because the S&P actually dropped lower in the following years.
Even professional investors who have analytical backgrounds and market knowledge cannot fully predict the trends of the market. Of course, their backgrounds do provide them with the advantage of early access to information, but one of the only ways they—or you as a private investor—can safeguard your money and financial future is through making smart choices for your investment portfolio. Let’s review three steps you can take to make smarter investment decisions that will help sustain you through market ups and downs.
Three Strategies Toward Smarter Investments
Current asset allocation
First of all, it’s important to look at your portfolio and see how your current investments are allocated. Where your money lies can determine how well your portfolio is going to perform and can give you a better idea of where to invest next.
Most people have their money distributed between stocks and bonds. If you don’t know how your personal portfolio is distributed, you can use an online tool such as Morningstar’s Instant X-Ray to see how your portfolio is distributed among stocks, bonds, and cash.
Future asset allocation
Your outlook on the market and your risk tolerance will determine how much you choose to invest in stocks, bonds, gold, and other assets in the future. The right mix for you can still provide a healthy rate of return on your money. This also serves as a cushion against the volatility of the market when it goes down. If you are not sure of your own risk tolerance, or if you are unsure about which stocks and bonds fit your current risk tolerance, use Vanguard’s Investor Questionnaire. This tool will suggest the right balance of stocks and bonds to you based on your answers.
In addition to stocks and bonds, you should also consider buying gold and other precious metals. Gold can be a smart asset that helps your portfolio in times of economic downturn. The price of gold went up during the financial crisis of 2007–2008 for example. U.S. Money Reserve is a good resource for detailed information on why purchasing gold and other precious metals might be a good choice for you.
U.S. Money Reserve has over 15 years of experience selling precious metals—working with over 400,000 clients during this time. The company offers information on coin research, numismatics, and finding the best opportunities on the precious metals market.
Long-term investment strategy
Once you have set up a mix of investments that you are comfortable with, it’s essential not to panic if your portfolio takes a negative return. Markets will go up and down. Selling because of panic or buying because you fear missing a good deal could be an almost guaranteed way to lose money. Instead, implement and follow a long-term investment strategy. Don’t get scared by temporary dips in the market. Don’t let emotion and fear dictate how you invest your money.
Financial markets are prone to dips and rises in value, and these trends can be incredibly difficult to predict. However, you can safeguard against this unpredictability by creating a portfolio that makes sense for you and following a logical investment strategy based upon that foundation. Remember to look at online resources to help you figure out how to best allocate your wealth.
Read more about gold investment strategy with U.S. Money Reserve: http://analystoffinance.com/2018/04/new-bullion-laws-u-s-money-reserve/