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10 tips for investing in a recovering market
TOPIC: Stock Watch
December 1, 2010
- Stay informed. Those sectors that led the market decline are not likely going to be the first to recover, so stay informed and be aware of the opportunities.
- Prepare to sell the dogs. Having survived the downturn, investors must take stock of their portfolios and be prepared to cut their losses on underperformers.
- Diversification is crucial. Not putting all our eggs in one basket is a good strategy in both good times and bad. Investors should remain diversified in terms of asset classes, market sectors and geographical spread.
- Stay in the game. When investors sit on their cash, they are likely missing out on the opportunity to benefit from a strong market rebound.
- Liquidity matters. Tip #4 warns against shifting too much into cash, but investors should consider having up to 10 per cent of their portfolios in cash to face markets corrections as they occur.
- Don’t panic. As the market rebounds, there will inevitably be corrections along the way. Sit tight and stay invested.
- Keep saving and investing. Having a regular savings plan and sticking to it will provide a comfort level. Regular monthly savings and investments into the market can help reduce volatility.
- Reduce debt. There is little point in investing on the one hand, while credit cards and loans eat away at investors’ wallets on the other. Big-time borrowers tend to struggle to outperform the cost of interest payments in the stock market.
- Tend to your portfolio. While not advocating day trading, investors need to keep a close watch on their investments. They must be prepared to sell and switch investments if performance levels deteriorate or if there is a short-term outperformance that allows for profit-taking and further diversification.
- Stay focused. Investors must not allow short-term challenges to dictate their long-term perspective.
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