4 items for every investor's checklist
Remember to keep a balanced mindset that takes into account the potential for further gains or a possible pullback.
Many go-go stocks like Tesla Motors (TSLA) and Netflix (NFLX) continue to hit new stratospheric heights while notching triple-digit year-to-date returns. It's easy to get caught up in the euphoria of success as well as the greed that accompanies a good run.
- The trend is your friend. I would continue to hold positions in stocks and bonds that are performing well. There is no sense in trying to pick a market top at a random point. In my experience, it is better to stick with the trend and have an exit strategy in place for when the tide starts to turn. I would not be adding significant new exposure to stocks at these levels given their most recent leap higher. Wait for a pullback to add new holdings.
- Have a risk management plan in place. This is one of the foremost tenets that I preach for every investor regardless of your time horizon, risk profile, or otherwise. You must have a sell discipline or stop loss on every position in your portfolio regardless of your conviction to lock in gains or protect you from a catastrophic loss. Remember that the market goes down twice as fast as it goes up.
- Cash is a valid position. If your “diversified” portfolio strategy is fully encompassed by three or four technology stocks, then you may want to look at lightening up your exposure. Selling into strength and having some dry powder on hand will allow you to take advantage of new opportunities at more attractive valuations. Cash can be a very useful tool and I always have a watch list of positions that I am evaluating for inclusion in my portfolio on a pullback in price.
- Look for undervalued income opportunities. The areas of the market that I have been taking advantage of since interest rates peaked in September are undervalued equity-income sectors. Two ETFs that are starting to pick up some momentum and are still well off their 2013 highs are the iShares US Preferred Stock ETF (PFF) and the iShares US Real Estate ETF (IYR). Both funds offer an excellent way to diversify your income portfolio with capital appreciation potential if interest rates continue their descent. In addition, we have been adding several closed-end funds to our portfolios that are trading at discounts and offer unique high yield dividend opportunities.
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""The trend is your friend. I would continue to hold positions in stocks and bonds that are performing well. There is no sense in trying to pick a market top at a random point.""
years back it was said to never buy a stock without identifying a SELLING price for the planned exit.
the concept is that you buy with an intent to sell. therefore you GET OUT at a predetermined point. be it a small gain or planned large gain.
a stock is MEANT to be bought low, sell high. so then sell that your planned gain and be satisfied that you met your goal.
if the stock goes higher - do more research to understand why and how it went higher. likewise if it never reaches your planned gain and drops before you get to sell.
exiting a stock at a 10% gain is a decent gain. hanging on "just in case" it goes higher will surly see the next serious drop as well.
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Do it once a year. This allows the best-performing asset classes to take off and run.
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