The success of an investment idea relies on long-term planning. Most seasoned investors worry about the day-to-day shifts in their portfolios. While investors shouldn’t completely change their long-term plans, making simple adjustments to a portfolio can help cushion losses or exaggerate gains. Seasoned investors are aware that it is dangerous to have the conviction that stocks will not decrease in price since the increase in prices happen at a time that people think they won’t. Balancing the selling pressure and buying enthusiasm keeps the market in check preventing an overbought condition in which the demand for a certain asset or security unjustifiably pushes the price of that asset or underlying asset to levels that are not justified by fundamentals. It is, therefore, necessary for investors to adopt some strategies that will aid them to make a market correction.
Exchange-Traded Funds (EFT)
An ETF is a marketable security that tracks an index, a commodity, bonds, or assets like an index fund. An ETF trades like a common stock in a stock exchange and has a higher daily liquidity as well as lower fees, making them an attractive alternative for individual investors. An inverse exchange-traded fund makes money when stocks reduce in price. Inverse ETFs prosper when stock prices fall. A true bear market is durable; hence, a good investor can make money in downtrends by using ETFs that follow a broad index.
Short position, also called short selling, refers to a situation that occurs when an investor sells shares they don’t own in anticipation that the stock will fall in the future. When the share price drops, the investor buys back the shares at the lower price to cover the short position. This occurs during economic recessions when pessimism prevails among investors.
A put option is the right to sell a given stock at a particular strike price until a given future date, referred to as the expiration date. As the stock price falls, the investor has the right to sell the stock at the higher strike price or sell the put option. The put option increases in value as the stock falls, hence when sold the investor makes a profit.
Volatility Reigns Supreme
Understanding the different stages of the economy can help guide an investor’s investment decisions and options. Investors should rely more on safe havens during this period due to the lack of confidence in the economy for instance by adjusting the percentage of bonds held which is opposite for the bull market recession as indicated on dollarcents.org
Bonds are informal documents that acknowledge a debt owed that companies and governments issue to fund their day-to-day operations or to finance specific projects, which may be in form of physical properties as well. Bonds less likely lose money than stocks hence reduces the losses to an investor’s portfolios during stock market declines. They also pay interest regularly, generating a steady, predictable stream of income from the savings during the recession.