Investors aren't feeling very confident about the stability of the stock market. In fact, according to research from Principal, 32% of consumers are very concerned about market volatility in 2020, up from 23% in 2019. Americans are also thinking more about market risk, with 70% spending more time worrying about volatility, compared with just 20% who haven't changed their attitudes from last year.
Consumers are right to worry that the market could see unstable prices, and even take a major tumble again. After all, investors saw substantial losses in March. And while the market has largely recovered from the coronavirus-driven crash, it could happen again any time -- stocks may still be overvalued, the US is in a recession, and COVID-19 cases are spiking again.
If you're one of the investors concerned about the state of the market, there are some options for you. In fact, here are a few key steps to take.
Make sure you have the right asset allocation
Smart investors maintain an appropriate mix of stocks and bonds and other asset classes to make sure they take on a reasonable level of risk. However, throughout much of the 2010s, many people became complacent due to the lack of market volatility, and stopped rebalancing their portfolios. As a result, millions were over-exposed to stocks when the coronavirus crashed the market in March of this year.
Those who sustained outsized losses due to the crash happened to get lucky, because the market rallied quickly, allowing many investors to recover most or all of their money in a matter of months. You probably won't get so lucky again any time soon. To make sure you're well-prepared if there's another downturn, now is the time to rebalance your portfolio so you'll have the right investments for your age, risk tolerance, and investing timeline. In fact, implementing an intraday, active defense equity strategy makes totally sense, because every day matters.
Review your investment strategy
With a sound investment strategy, recessions and market corrections aren't something to be feared. In fact, they present opportunities. But while smart investors can make money over time no matter the market conditions, those without a sound strategy may do fine riding the wave in a bull market, but get hit hard by a crash.
To avoid finding yourself stuck holding stocks that aren't likely to recover from a downturn, review your investment approach to ensure you're invested in businesses you understand and believe in. Having confidence in your investment strategy can also protect you from panic selling if share prices start to fall, which is one of the worst things you can do since it locks in your losses.
Commit to thinking long-term
Buying stocks for a short period of time and benefiting from quick profits when the price goes up can seem like a great way to make a quick buck -- if and when it works. And indeed, some people do well day trading or actively trading stocks for a short period of time. But for most people, this won't work consistently, and it will likely lead to substantial losses eventually.
Instead of purchasing shares with the hopes they'll rise quickly so you can sell them ASAP, opt to invest for the long-term in businesses you believe will stand the test of time. Making solid investments in strong, stable companies should help you to build wealth even through market cycles.
If you aren't sure how to invest in stocks for the long-term, you can also just put your money into index funds and leave it to grow over decades. Betting on the S&P 500 index is as close to a sure thing as you can get, and it's what Warren Buffett recommends most investors to do. However, bear always in mind that the stock market moves up and it moves down. We believe the most effective stock market defense should protect you when you need it not when you don’t. A solid intraday active defense equity strategy seeks to identify intraday weakness in the equity market, i.e. for example in the S&P 500, profit from it, and get out of the way during rallies. Offense & Defense wins Championships! So, consider to ad for example 20% equity defense. The impact can be substantial.
3D Capital Management – Eric Dugan
Listen to Eric Dugan, Chairman and Head PM of 3D Capital Management and why he is concerned about the stock market and why he suggest to stay long the stock market, but at the same time also be protected. Because risk happens fast and managing equity market risk every day matters.