Nobody is too sure how the economy is going to fare in the future. This is the reason why you have to plan ahead so that you will be sure that you are going to be well-provided for even as you get older until you reach the age when you can no longer work. You have to come up with an investment plan like buying and selling shares in the stock market that would suffice for your needs, luxuries and other kinds of activities well into your retirement age.
An ideal retirement portfolio would look like this. The percentage of stocks that must reflect on it should be the difference of 100 minus your current age. Then the rest of the equation will be composed of cash and bonds. There are some people who would also advise you to allot little portion of precious metals as well as real estate. For conventional thinkers, they fear that stocks are too volatile that these may not be an ideal option especially for short-term investors, which is why retirees were often cautioned against holding large percentage of stocks. Through time though, such kind of thinking has already changed and many people are already looking for such option when it comes to their retirement plans.
So what brought about the change? One vital reason for such change is the fact that these days, people live longer than they used to. For healthy retirees in their mid-60s, it will no longer be a dilemma to invest on stocks with five years holding duration. Another important factor in this regard is the inflationary cycle that most countries all over the world are experiencing. This can pose real threats to retirees who have invested most of their assets on bank CDs, bonds and other kinds of investments with fixed return. Whenever there is a rise in inflation, the interest rates will also increase. Such scenario would mean that higher returns are going to be paid on new bonds, but the older ones will be less their original worth. If you own the latter, it will be more likely that the pay that you will get from such will not be enough to cover the continuously increasing cost of all taxes and other changes brought about by inflation.
Dependable Investment despite Inflation
One proven effective hedge in times like inflation that most people have tried and tested when it comes to investment is stocks. Despite the odds that the economy would be facing in the future, the prices of stocks can be increased manually by various companies to pay for the rising costs that will be brought about by the financial state. This can never happen with bonds because these have only little flexibility or none at all.
It is very essential to secure your future and investing your money on proper venues while you still have time is the right way to do this. It is ideal that you look more into the stock market and mix it with bonds and other types of assets depending on how much you want to gamble and, of course, on your personal and financial condition.
There are several trading strategies used by investors in buying and selling in the stock market. These strategies are used by investors to check out the stocks to buy and the time to sell them.
These strategies count up to more than a hundred ways, all tried and tested, all effective, and have been so for many years. Experts advise beginners to investigate some more of these basic trading strategies.
Hedging
Hedging is a way of protecting an investment through the reduction of the risks involved in holding a particular stock. One way is buying a put option.
This allows the selling of the stock at a particular price within a certain time period. In turn, this offsets the risk of a decrease in the stock prices. (There will be a value increase of the put option as soon as the stock price falls.)
Selling financial futures like the S&P 500 is another way of hedging against market declines. However, the most expensive hedging strategy is to buy put options against individual stocks.
Investors with big portfolios is better off if they buy a put option on the stock market itself for the reason that it protects them from general market declines.
Dogs of the Dow
This strategy (popular in the 90s) entail the buying of the best-value stocks in the Dow Industrial Average. These are the ten stocks with the lowest P/E ratios but with the highest dividend yields.
This tactic hinges on the idea that these ten lowest companies have the most potential for growth. The Dow Index have their listed companies as those which have a reliable investment performance.
Pigs of the Dow
This is a 180-degree variation of the Dogs of the Dow strategy. In Pigs of the Dow, five of the worst-performing stocks on the Dow are selected, based on their price decline percentage from previous years.
The twist lies in the assumption that these Pigs of the Dow, the worst-performing five stocks, are going to rebound more than the others will.
Buying on margin
Buying on margin is buying stocks using money from a broker. Because of more stocks received despite the low investment, the investor is given more by margin buying rather than by full payments.
In the event the stock loses value, the losses in margin buying is correspondingly bigger. In order to limit these, investors have stop-loss orders when buying on margin. This is usually about 10% of the total account value.
Dollar cost averaging
This is investing fixed dollar amounts on a regular basis. (Example: monthly buys of shares from a mutual fund.)
A price drop will cause the investors to receive more shares for their money. Conversely, a raise in the price will cause fewer shares bought.
Value averaging
Value averaging is the alternative to dollar cost averaging. This involves a decision to have investments set to a regular value.
If the price of the fund increases, the investors will put in higher dollar amounts to match the increase. If the fund price decreases, they will spend less money. Their investment will average out to the actual cost of the fund.
To date, value averaging performs better than dollar cost averaging strategy most of the time. When used in tandem with the other stock market strategies, value averaging can actually help in securing investment fund growth.
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