When it comes to the Stock Market – You want to Buy Low and Sell High
Many of us know that one of the keys to success for profitable stock market investing is to “buy low and sell high”. This seems obvious to most people. When you are buying anything and then potentially selling it in the future, you would want to purchase it at a lower price than what you might ultimately sell it for. You may have learned about this in grade school when we were taught how to add and subtract.
The stock market is currently around all-time highs with record gains and growth. It’s been a bull market since 2009. It’s been a nice run, and many are wondering where the stock market might be headed next.
So I have a question for you…
Has your financial advisor advised you to “sell” during these all-time highs? This could allow you to “lock in your gains and profits” before the next major market downturn.
IF you answered NO to this question… that your financial advisor did not advise or ask or suggest or even check with you regarding “locking in your gains and profits”, then it could be likely that you really have a Wall Street Commission Broker (they used to be called Stock Brokers but many of them do not like that term). You see, a Wall Street Commission Broker will rarely ever recommend that you take any money out of the market… because they would not make any money from your account if it is not invested in the market.
Or perhaps your money is with a discount broker of in an index fund in which you receive very little or no service? Sure, you are most likely saving a small percentage in fees, but might be giving up some gains which could be costing you thousands of dollars in profits in some years. Has anyone from the discount brokerage firm or index fund contacted you about “locking in your stock market profits”? Probably not.
I suppose it’s possible that your commission broker or discount broker missed that lesson about “buying low and selling high”. Why else would they not contact you in order to inform you about your options?
It comes down to this. When you have money invested in the stock market, think of it that you are actually “renting” your gains. Contact my office at 402-904-7575 if you would like to discover how to actually “own” your gains (instead of renting them).
The market goes up and it goes down. Your account value on your monthly statement changes. During times like we have seen from 2010 to 2017, many had big gains. During periods like we saw from 2000 to 2002, and from the fall of 2007 to the spring of 2009 (approximately 18 months), many experienced big losses.
For example, if a person has $1 Million invested in the stock market during 2008, they might have lost 40% so their account would be down to $600,000.
$1 Million minus 40% ($400,000) equals $600,000
$1 Million – $400,000 = $600,000
Here is the part that your Wall Street Commission Broker or discount broker might not have told you about. When you suffer a loss of any size, you need a greater percentage gain just to get back to even.
If you gained 60% on your lower account balance of $600,000, then this would be a $360,000 increase. You still would not be back to your original account balance of $1 Million.
$600,000 with a 60% increase ($360,000) gives you $960,000.
Your Wall Street Commission Broker or discount broker might have missed this part in school also. If they do not know about this, then you might wonder what else they do not know which could have a negative impact on your money and investments? Or worse yet, if they do know about it but have never informed you regarding this, what else are they not telling you?
So in the example above, you had a loss of 40%, and then a gain of 60%.
Your average return was positive 20%.
Your actual real return was minus 4%.
Where else (other than on Wall Street) can you have a positive gain on paper, but still lose some of your hard earned real money?
So back to the original topic of this post. Are you currently “buying low and selling high”?
What are you doing specifically to benefit from some of these all-time record highs?
The money that you have still at risk in the stock market could lose a substantial amount if the stock market has a big downturn, like we have seen over and over again in history.
What is your plan to be prepared for the next major stock market downturn / correction / crash??
It’s interesting to note that during times when the stock market is going up in value, it’s common to see a number of television advertisements from different brokerage firms and trading companies. Many of them quickly stop these ads when the stock market has big downturns. They seem to be good at front running.
Full Disclosure: I am a Fiduciary Financial Advisor in which I take care of my clients’ best interests. I am securities licensed and also licensed for different types of insurance (life, annuities, long term care). I believe it can be important to help people with a “mathematically correct solution” for their investments based on their important financial goals. This could include investments in the stock market along with a “balance” of investments that might not include stocks.
Some of my clients choose to have most of their money invested in the stock market. How this is different is that it’s based on their goals, and we have a plan in place. They also know about other potential options where they can earn more than they would from savings or CD’s and without stock market risks of loss.
Some of my clients choose to have less of their money invested in the stock market, or even no money. It’s all about real financial planning based on their values and the things that are important to them.
I enjoy meeting with new people so we can do a review of their investments in which we start with their important life goals and financial objectives. I want to know what is important about money to them. What do they want to accomplish with their investments? What are their concerns?
Then we will do an extensive review of historical returns and risks (called Standard Deviation – likely something your Wall Street Broker or discount broker has not mentioned). My team and I will do a fee analysis along with other important factors. This is just part of the Results in Advance Planning process that can help put you on a better path with a balanced plan based on your goals and designed to help put you on a better path over the next 10 or 20 years and beyond.
If you would like to learn more about “locking in your profits” in the market, potentially getting better results based on your goals and ways to reduce risks, then let’s chat soon. You can contact my office at 402-904-7575. I will be happy to answer your questions, and see if I can point you in the right direction. This could be the best 20-30 minutes that you spend all year!