How to Invest Regardless of the Latest Headline
Investing should be for the long term, not a race to react to the latest headlines or try to plan for the future based on fears. How should you invest for the long term, regardless of the endless series of political crises?
Investing Regardless of the Headlines
- Eliminate the risk of holding your investments. Pay off any margins or debts against your holdings. This improves your profit margin and reduces the risk of not being able to pay back debts.
- Follow the trend, not the latest headline. If the debt rating of a nation keeps declining despite interventions, cut your losses and sell any bond funds holding that nation’s stock. If you rely on news reports to decide to buy or sell, you've acted hours or even days after the institutional investors have acted.
- Diversify to minimize risk by investing beyond your own borders. Owning international stock funds or bond funds is one solution. However, you should be careful to own bonds or stock funds across the entire world, such as an Asian fund and a European fund. Do not invest in a single continent.
- If you are invested in stocks, hold the stocks of blue chip companies with an international portfolio. Coca-Cola, Pepsi, Caterpillar and other brand name stocks that sell products around the world and in many different currencies are a good investment. When one nation’s economy falters, the large international company still makes money in other nations. When one currency devalues, they can adjust their prices or ship in product from surrounding nations. Being global isolates them from national and regional financial crises.
How to Avoid Investing Mistakes
- Don’t jump to invest in a country with a high rate of return. If a country has a history of defaulting on its debt as several South American nations have, don’t invest money there since the interest reflects the risk.
- Don’t day trade based on the latest financial news articles. By the time you’ve read it, the market has already reacted and you’re selling low or buying high.
- Stick with dollar cost averaging or periodic portfolio balancing to avoid peaks, troughs and the stress of trying to act appropriately in the face of the latest headlines.
- Do not make investments that don’t make sense in calmer periods. If you wouldn’t buy that investment if the headlines did not proclaim an impending disaster, you should not buy it at all.
- Set up automatic price points to sell investments so that you don't have to watch the news for a reason to bail out of a stock.
- Do not buy investments on margin, so you cannot be doubly burned by owing money on investments worth far less than when you bought them.
- Stay out of the foreign exchange market or Forex. Institutions use computers to buy and sell within fractions of a second when a threshold is reached; the vast majority of those who try to time Forex lose money, at a rate far worse than those who day trade stocks.
- If you want to invest in a country, buy an international mutual fund that holds significant holdings in that country or buy stock in companies that do extensive business there. You'll retain liquidity over buying stocks on their stock market and dramatically simplify tax reporting.