Stock Investing in an Uncertain Market - dummies

Stock Investing in an Uncertain Market

The end of a bear market doesn’t automatically mean the beginning of a bull market and vice versa. Sometimes markets move sideways or very little either way until investors and participants in the economy figure out what’s what.

Everyone has an opinion about marketplace uncertainities

Clashing points of view in the media tell you that even the experts aren’t sure which way the market and the economy will go in the coming months. In uncertain markets, compelling evidence and loads of opinions will evenly line up on both the pro and con sides of the economic debate. Bullish and bearish advisors and commentators may both seem persuasive, so you may be left scratching your head, wondering what to do. In this case, your patience and diligence will pay off.

Deciding whether you want to approach an uncertain market

The approach to take in uncertain markets is pretty simple. If you think that a bull market is starting, you want to have 100 percent of your growth portfolio invested in stocks, and if a bear market is starting, you want the percentage to be 0. Therefore, in an uncertain market, 50 percent in stocks and 50 percent in other investments is just right.

Of course, these three scenarios need to be balanced by many nonstock factors, such as your individual financial situation, age, debt level, career concerns, and so on. However, all things being equal, those allocations aren’t far off the mark.

You’re wise to treat uncertain markets as bear markets until your research starts to give you a clear idea of the market’s direction. No matter how adventurous you are, the first rule of stock investing is to minimize or avoid losses. If no one can agree on the direction of the market, then you stand a 50 percent chance of being wrong should you take the bullish stance.

However, if you take a bearish stance and the market becomes decidedly bullish, no real harm is done except that you may miss a stock investing opportunity during a brief period of time. Just keep in mind that stock investing is indeed a long-term pursuit. Jumping into a bullish market is easy, but recovering from losses may not be.