We interviewed John Spencer of Opteck to find out how to invest in these markets. According to Mr Spencer, the goal of any investor is to develop a solid portfolio that maximizes returns. Those who succeed typically learn by trial and error what works and what doesn’t work. By taking advice from others who have tried, failed and succeeded, you can avoid making the same mistakes and start boosting your ROI today.
Value Investing and Trading Momentum
You’ve probably heard the trading motto “buy low and sell high.” The goal is to buy a stock when it’s low priced, or “on sale,” and sell at a higher rate later on. Value investing and trading momentum are two ways to achieve this.
Value investing is simple: buy when the stock is on sale, or undervalued. These stocks have more room to grow, and they can generate quick returns in some cases.
Momentum trading is a little bit different. Rather than buying when the stock is undervalued, you would buy when the stock is continuing to climb higher. The belief is that a stock that is on the rise will continue to rise. The biggest issue with this approach is that it’s really a short-term strategy. Eventually, the stock will reach its peak and fall again. It can also be tricky to determine the best time to sell.
Value investing tends to be the more popular and successful approach here.
Investing in stocks that pay out dividends is another smart way to boost your ROI, particularly right now when the market is difficult to predict.
Ideally, you want to find a stock that is cheap, has a high trading volume and at least a 2% dividend yield. It’s not uncommon to find stocks with higher yields of 6% or more, but these stocks are usually higher priced.
A dividend will supply you with a steady stream of income, which offsets the cost of your initial investment. Many investors are able to reduce the price they paid for their stock to $0.
Dividends also give the opportunity to take that money and invest in more shares, or invest in another company without having to use your own money.
The simplest and one of the most effective ways to improve your portfolio’s ROI is to diversify your investments. Diversification will also help protect you from significant losses in bear markets.
Never put all of your eggs in one basket. When you do, you put everything on the line – everything at risk. Your entire investment could disappear overnight. When you diversify, you minimize your risk while boosting your ROI as you gain exposure to a variety of sectors.
Many investors recommend investing in mutual funds, but you can also create your own “fund” of sorts by investing in a handful of companies that you know and trust.
Fixed-income or index funds can also be added into the mix.
Know When to Sell
Some investors make the mistake of going into autopilot mode once they diversify their portfolio, but it’s important to still keep on top of your investments and the market as a whole. Keep a watchful eye on the companies you invest in, so you know when to get out.