TAKING ADVANTAGE OF THE CURRENT MESS IN WORLD MARKETS:
“When people get greedy, get scared, when people get scared get greedy.” This statement for Warren Buffet pretty much sums up the entire world of investments in just a few savvy words.
Most of the time investors make the mistake of jumping on the bandwagon after it has started to roll (a prime example is the IT boom in the late 90’s) and they get badly burnt when the markets fall. It’s much better to be on the bandwagon before it begins to move. This might sound like fuzzy logic to some, but it is wise to consider investing when others are backing away from the markets, while keeping your long term goals in mind.
Investing really needn’t be complicated at all. Those who complicate their investment strategies usually get the worst performance. The most important factors to be considered when investing – whether in good times or bad- are as follows:
1st. Has discipline – Those who jump on and off the bandwagon, and who erratically change their strategies, are the investors who get hurt the most.
2nd. Know your timelines: How much time do I have to invest this cash? How much is my short-term cash (1 to 2 years)? How much is my mid-term cash (3 to 9 years)? Most important- how much is my long-term cash (10 years +)? Do I have the discipline needed to park my money somewhere and keep in mind that its purpose is long-term growth?
3rd .Dribble small amounts of cash into the markets every month for the long term (10 years +).
4th.When your dribbles turn into large amounts of cash, then REDUCE YOUR RISK as per point # 2, by knowing your timelines.
INVESTING IS THAT SIMPLE!
In these current times of financial crisis, one of the most effective ways to invest is by doing something we call “DOLLAR COST AVERAGING”. This means investing small amounts into the markets over the long term. As per Warren Buffet, when people get scared it is time to start investing.
The best markets for the future are the markets with the most potential for growth 10 years from now, but which at the same time will fluctuate the most over the next 10 years. In most cases these are the emerging markets, i.e.; China, India, Eastern Europe, Middle East, and South America. The prices in these markets are down, which therefore makes for some great buying opportunities.
As for lump sum investments, it is best to really get to understand your TIMELINES, as in point # 2. If you have a $100,000 you have to ask yourself: First, How much of this $100,000 can I just put away for the next 10, 15 years and not be concerned about the ups and downs in the world markets? Most people say 10% or so. This amount should be invested into a long term, high growth investment.
Next, one should ask: How much do I need liquid for the next 1 to 2 years? This amount should then be invested into Bonds, Money Markets, and Cash etc. Finally, the remaining amount will be your 3 to 9 years investment amount. This amount needs to be invested in ALTERNTIVE investments that can provide positive returns in both good and bad market conditions by being NON correlated to the world bond or stock markets (like before and after the 2008- 2009 Sub prime mess)
Always ask your Financial Advisor: “What is your strategy in good (easy) as well as bad market conditions?” This can be difficult to answer. As we say this separates the salesperson from a true financial advisor. Anyone can sell while the markets are hot, but a genuine financial advisor will guide you to success when markets are not.