This dollar-cost averaging approach will prevent you from being over-exposed to a bad timing of purchases. For example, you should be aware that we hit historic lows back in March of 2009 and in the last six months, we have had a fierce rally of over 50%.
Now, a market timer would typically try and identify a top at this point and perhaps sell their positions or maybe even go short against the market or specific positions.
Most financial advisors will recommend against any attempts to time the market. This is not the recommended strategy because it is too difficult to identify a market top to make a move this bold. Ask it now at Moolanomy Answers!
Copyright © 2007 - 2009 Pinyo B. Bold moves require a high level of certainty, and future predictions of broad market direction will rarely have such a high level of certainty.
Altering your buying or selling based on this awareness
Most professionals will recommend consistent buying of stocks over a long period of time. This feed is provided for the convenience of Moolanomy’s subscribers. If the market corrects and moves lower, you’ll be well positioned to buy larger “chunks” at lower, more attractive prices.
Remember, you want to buy low and sell high. This doesn’t mean you need to know the exact level of the Dow or the NASDAQ each day, but it does mean you have a good feel for the current level and trends of the broad stock market. What financial advisors fail to tell you, however, is that market awareness is important and should be a factor in your investing decisions and strategies.
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What is market awareness?
To be aware of the market means to follow the market, even if at a very basic level. In a market that is up 50% in six months, I would not want to buy as much as I have been buying as the market has gone up over the last several months; therefore, I would cut my buying activities in half at current levels. It can’t be done, they will tell you, and I agree. Timing the market or specifically identifying market tops or bottoms as opportunities to buy or sell is usually a futile effort. You are not allowed to reproduce the content within this feed in any manner.
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I disagree with this approach.
Going back to our current example, I would recommend using market awareness to adjust an investor’s buying activities. Most people tend to buy high and attempt to sell higher, but in many cases, this doesn’t work. If the market continues to go up, then you’ll continue to do well. Many will even recommend blindly continuing this approach no matter what the stock market has done or is currently doing. Since you’re probably focused on the long term, selling is not really on your mind, but this doesn’t mean you shouldn’t attempt to maximize lower prices and minimize your purchases at high levels.
Financial advisors aren’t likely to recommend this strategy
Remember, a financial advisor is the professional or the expert in your relationship; therefore, they want to be the ones making strategic decisions. Financial advisors typically don’t make money on idle cash. They want you to be fully invested at all times. Is that in your best interest or the financial advisor’s best interest?
To sum up, nobody is recommending becoming a market timer, but being aware of the stock market levels and trends can boost your long-term returns by helping you buy stocks or funds at more attractive levels over time.
Do you have a financial question? Furthermore, if you slow your buying when the stock market is high, you will be accumulating cash.
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This post was written by admin on September 30, 2009
