Why the Recent Stock Market Climb Shouldn’t Alter Your Investment Strategy: 3 Compelling Reasons
In the last 12 months, the stock market has experienced a rapid climb of about 10%. This sudden increase has undoubtedly inflated the values of investor’s portfolios, which may cause some investors to contemplate sinking more money into the market or changing their investment strategy. However, I won’t be changing anything. My investment ship has it’s course set, and while I do occasionally make minor adjustments, this recent stock market phenomenon will have me doing nothing but holding my current course.
I have 3 reasons why I won’t be altering my investment behavior, even with the recent rise of the markets.
Direction Could Change
As quickly as the stock market began to climb, it just as quickly begin to tumble. Making any change based upon a short term rally, which many say has no real reason for occurring, could end up being a mistake if the market decides to turn.
Day Trading Is NOT For The Average Person
Some might look at the recent daily gains of the stock market and decide they might dabble in day trading, or investing short term money for a quick gain. The problem with this idea is that the average person doesn’t have enough discretionary money available to really make it worth it. For example, let’s say that a person had $1,000 they could use for day trading, and the stock market has a really good day and the investment increases in value by 2%. The gains on that $1000 would be $20. Once you take into account trading fees and the fact that there will also be days where you lose money, it hardly seems worth it for the average person.
Over Investing Your Budget A Bad Idea
Another idea that might pop into one’s head is to temporarily stretch their budget to increase the amount they are investing thinking they will greatly increase the value of their portfolio as the stock market continues to climb (hopefully). This may include temporarily suspending funding your other savings or your emergency fund. While saving as much as you can for retirement is a great idea, abnormally stretching your budget usually comes back to bite you in the form of an unexpected expense, which may require selling some of your investments to resolve.
Investing in the stock market is a long term proposition, your money grows over the course of time. If you have extra room in your budget that you can comfortably invest, you should be doing that anyway regardless of the recent stock market ascension. The sudden climb may make you think about taking extraordinary action, but you might also consider just ensuring your investments are diversified, provide you income and don’t keep you up at night.
What do you think, Clever Friends, have you changed anything with your investments due to the recent climb in the stock market?
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Brock is a software engineer by day and personal finance blogger at night. He is a fitness junkie and enjoys grilling and smoking meat. Married with two children, Brock strives to improve his skills as a husband and father, and is always on the lookout to stretch his family’s budget as far as he can.