SPONSORED — If you’re an equities investor, you might be sitting pretty on a fat portfolio right now. That’s because, in recent weeks, equities markets have performed extremely well. The S&P 500 is up 7 percent, while the NASDAQ composite is up 9.4 percent and the Dow is up 8.9 percent since late August. This surge has resulted in modest, short-term retracements, with the markets then moving to higher highs. If you’re looking to make the most of your investments in coming months, here’s what you need to know.
Know your target (and stick to it)
That’s right where many investors forget their targets.
“Many investors fall into the FOMO (Fear of Missing Out) trap,” said Ken Peterson of Online Trading Academy. “They are afraid of missing out on a big rally. While this way of thinking is understandable, we all must do what we can to avoid it. This is one of the reasons having targets on your investments are just as important as having stops. When the market gives you a profit, take it. If you own MSFT, AMZN, FB, or GOOG it is time to take profits or hedge your position.”
Recognize the market stage
John Templeton said, “Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria.”
According to Peterson, when investors show “FOMO,” the market is at the beginning of euphoria.
“This does not mean a huge market downturn is imminent,” he explained. “Statistically, the fundamentals of the three largest economies — U.S., E.U. and China — are sound. Currently, the world has the fewest countries in recession of any time in the past half-century. Further, we are in a time of relative peace. These are all good for growth.”
With summer earnings better than expected and the majority of equities coming out with positive earnings and fundamentals this fall, the economy is showing a great underlying strength. That said, the rally may not be sustainable in the long run.
Know the worry points
You’ve likely heard the old saying “When there is nothing to worry about, start to worry.” This is great wisdom for investors, as recognizing worry points can save you in the long run. So what are the worry points?
“First is debt,” Peterson said. “Sovereign debt, student debt, consumer debt, etc. Economies cannot grow and equity prices cannot rise if people and governments are directing their disposable income to debt servicing rather than investing or consuming. All three of the world’s largest economies are debt-laden.”
According to Peterson, fiscal tightening is also a worry point.
“Both the European Central Bank and the Fed are tightening. This could have a dampening effect on equities markets,” he explained. “It hasn’t yet and it doesn’t have to have that effect. Madame Chairwoman Yellen has played the soft quantitative tightening brilliantly. We will have to see how Chairman Draghi, in Europe, handles quantitative tightening as the ECB is just beginning to do so.”
This European tightening has a great impact on U.S. equities markets, particularly when you consider that nearly 1 in 3 dollars invested in the U.S. markets is foreign.
Do your homework
Suffering from investment “FOMO” won’t help you make wise investments. Peterson warns against jumping into the market just because you don’t want to miss out. If you’re invested in equities currently at all-time highs, take the profits.
“Do your homework,” he said. “Find equities that are fairly valued. Let the assets at all-time highs retrace. You can always re-enter.”
For more tips and advice, visit Online Trading Academy.