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Financial Focus/All Stock Market Trends End - So Be Prepared
submitted by Edward Jones
Stock prices fluctuate every single day. During a stretch of months or years, the stock market can move up or move down. No one can really predict when a bear market will replace a bull market, or vice versa, but one thing is clear: Sooner or later, all stock market trends start to change direction - and when that happens, you’ll want to be prepared.
Sadly, some investors make exactly the wrong moves during any given market trend. In the midst of a long bull market, they gain so much confidence that they keep pouring their dollars into investments that have already soared to record highs. Conversely, a prolonged bear market can cause some investors to act in an unduly pessimistic manner - so much so, in fact, that they may head to the “sidelines” to wait for better times.
Of course, it’s not all that hard to understand these types of investment behaviors. When other investors are either gleefully snapping up stocks or hastily fleeing the market, you might feel pressured to do the same. After all, you may reason, these people can’t be wrong - they must know something.
However, when masses of people decide it’s time to either buy or sell, their decisions may be based on greed or fear, rather than rational analysis. This type of emotional investing frequently leads to bad decision-making. For example, investors who jump out of a long bear market may end up missing the early stages of a recovery - and that’s often when the biggest gains are recorded.
Unfortunately, neither you nor anyone else can pinpoint precisely when today’s bear market will become tomorrow’s bull market. But even if you don’t know exactly when one trend will end, you can still position yourself for the next one.
How? By following some investment techniques that are valid during all types of markets. Here are a few ideas to consider:
* Stay invested - If you have long-term financial objectives, you need to stay invested all the time. If you pull out of the market when it’s been down for a while, you won’t have your money working for you when prices start going up again. Plus, good investment opportunities are still available in “bear” markets.
* Stay diversified - Even if you make no changes, your portfolio can become over-concentrated in a few areas if the value of a particular asset, or group of assets, rises or falls significantly during market run-ups or declines. When that happens, you may want to rebalance your portfolio so that it’s once again properly diversified - and appropriate for your risk tolerance, your goals and your time horizon.
* Stay disciplined - Try to avoid “start-and-stop” investing. Instead, try putting the same amount, in regular intervals, into your investments. By doing so, you’ll buy more shares of an investment when the price is low, and fewer shares when the price is high. Although this technique won’t guarantee you a profit or protect you from a loss, it should help you become a more disciplined investor.
By definition, market trends come and go - although some of them stay longer than we’d like. By recognizing the transient nature of every bull or bear market, and by following the investment strategies we’ve discussed, you can take advantage of the possibilities that come your way - no matter where the current trend is heading.
This article was submitted by the financial representatives of Edward Jones in Hagerstown: Greg Garner, 301-733-9465; Dave Walker, 301-766-7300; Joan Bowers, 240-420-8514; and John R. Pullaro, 301-766-7300.
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