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Invest Without Stress

12 July 2010 No Comment

I can’t help but think about all the investors who constantly stress out about the market or about the future of their investments.  This is a terrible way to go about investing, because it is just not healthy, and it can also lead to unwise investment decisions.

There are a few things I think you can implement to help remove the stress of having money at risk in the stock market.

  • Have some of your portfolio in cash – By having some of your portfolio in cash, you can accomplish a couple things.  First, it helps to minimize the losses in the event of a major market downturn, and second, it provides capital to take advantage of lower stock prices should a downturn occur.  Wall St. and financial advisers will typically recommend against cash, but ignore them.
  • Focus on dividends – Dividend returns are the perfect way to hedge against a drop in share price.  Now, dividends will usually not make up for a massive loss, but they can definitely help, and the dividends can help you accumulate some cash in your portfolio.
  • Hope that some of your stocks will lose value – What the heck do I mean by this?  Well, it goes with the above statements.  I have some cash and I want to buy more of a few stocks.  If I’m in an accumulation phase, then I want to buy at attractive levels; therefore, I want a few stocks to seriously go down.
  • Consider DRIPs – DRIPs, or Dividend Re-Investment Plans, are a good way to remove stress from investing.  In such a plan, you will typically contribute a set amount of capital to a stock every single month, and you automatically reinvest dividends.  If the stock goes up, great.  If the stock goes down, no worries, the reinvested dividends will buy more shares.

Now, the above strategies mostly apply to young investors who have a number of years (or decades) of investing ahead of them.  If you’re nearing retirement age, then these ideas may not apply.  In fact, if you’re nearing retirement age, you should really not have your assets tied up in risk assets such as stocks.  If you’re praying for a jump in stocks because you need the money soon, you’re not doing anything but gambling.  You may as well go play some Blackjack in Vegas.

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