In a time where most exchange traded funds (ETFs), mutual funds, stocks and other securities are down, many investors have made some poor decisions. On the bright side, however, there are ways to minimize the impact of these errors.
Even the most famous investor of all, Warren Buffett, admits that he made investment errors by underestimating just how bad things could get and the depth to which prices could fall. On Monday, he said that the economy has “fallen off a cliff,” says Alex Crippen for CNBC. It’s clear that the extent of the damage has taken many by surprise.
So how can one make up lost ground? The Associated Press states that it’s possible by following three simple strategies: save, invest and spend.
Newton’s third law states that for every action there is an equal and opposite reaction. This law will eventually hit the economy and stock market, and both will rebound. Here are a few simple tools to follow to ensure that you can benefit from the opposite reaction while limiting the number of mistakes you can make that will hurt your portfolio further:
- Invest in ETFs and indexes. This generally gives investors good exposure to sectors and markets and prevents one from banking on the rebound of an individual stock. Additionally, ETFs offer transparency, low-cost alternatives to mutual funds and tax efficiency. When doing so, keep a strategy in mind; we follow the trends.
- Max out your 401(k). The philosophy of saving can’t be overlooked and one must keep retirement plans in mind.
- Diversify your portfolio. Keep a balanced portfolio and don’t put all of your eggs in one basket. This generally protects you from market swings. Take a look at broad sectors using ETFs for a great range of exposure.
Meanwhile, the billionaires who turned a New Jersey resort hotel into a multibillion-dollar venture – Loews – have some suggestions for investors, because these tips are among the things that made them successful:
- Watch out for the downside. Having an exit strategy will help you miss most of any downtrend if you hit the escape button when a fund goes below its long-term trend line or 8% off the high. This will also help protect any gains you might have made in the time you held the fund.
- Be patient. Wait until areas move into their own uptrends, then proceed accordingly. Don’t react to rumors or fears. We’ll see the market moving again at some point. Don’t rush it.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.