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Preston Victory
November 13, 2024
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Welcome, Future Early Retirees.
As many of you know, there was an election last week. While the outcome was certainly notable, what has been interesting since then is the stock markets reaction. If you haven’t check, I’ll give you a quick summary. It shot up and to the right 📈. While this recent run up has been exciting, it is important to not get on the emotional rollercoaster of investing. Let’s talk about why.
In today’s newsletter:
The highs and lows of the stock market
1. Remember Volatility:
Markets have gone up and down since the beginning of time. The recent gains might be thrilling, but they're part of a cycle. Remember 2021 when NFTs were being sold for millions? This was then followed by 2022 where the market corrected.
Speaking of corrections, very market enthusiast knows that corrections are a part of investing life. They might not be imminent, but they are inevitable.
2. Avoid Emotional Investing:
Fear of Missing Out (FOMO): Don't let the fear of missing out drive you to make hasty decisions. Buying stocks just because they've gone up significantly could mean you're entering at the peak. Aw
Overconfidence: A soaring market can lead to overconfidence. Remind yourself that past performance does not guarantee future results. Overconfidence can lead to excessive risk-taking.
3. Manage your Risk:
Evaluate your portfolio: Even when your portfolio is doing well, ensure it remains set up to match your risk tolerance. Don't chase performance by putting all your eggs in one sector or asset class that's currently hot (see the internet bubble in 2001).
Rebalance: Use this time to rebalance your portfolio. If a certain asset class has grown disproportionately, consider selling some to invest in underrepresented areas of your portfolio.
4. Long-Term Vision:
Invest for the Future: Remember why you started investing. It's likely for long-term goals like retirement or buying a home. Focus on those goals rather than short-term market movements.
Stay the Course: Don't let market highs sway you from your investment strategy. If your strategy was sound for the long term, it should remain so unless significant changes in your life or the economic landscape suggest otherwise.
5. Cash Reserves:
Liquidity: Maintain cash reserves. This isn't just for emergencies; it's also to take advantage of future dips in the market.
Avoid Overcommitment: Don't invest every penny. Having cash on hand ensures you have the flexibility to make decisions without the pressure to sell assets at inopportune times.
6. Education and Review:
Continuous Learning: Use this period to educate yourself more about financial markets. Understanding more can help you make informed decisions, not just emotional ones.
Regular Reviews: Regularly review your investments not just when they're soaring. This practice helps in understanding what's working and what isn't, adjusting your strategy as needed.
Thank you for reading!
Reply to my emails anytime! I’d love to hear from you.
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In which year did the S&P 500 experience its largest average daily percentage change over a 5-week period since the Great Depression, excluding the immediate aftermath of the 1929 crash? |
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Talk to you all next Wednesday 🙋♂️
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