How to Invest When You Can’t Predict Market Direction

4-Minute Money Ideas

How to Invest When You Can’t Predict Market Direction By Douglas Goldstein CFP®- helping olim handle their U.S. investments from Israel

If you’re thinking of investing in stocks but you’re concerned about which direction the stock market will move, here’s what you need to know:

If you are a new investor with a long-term perspective, it shouldn’t matter which direction the stock market moves in the short term. What you should know is that a bull market (up market) generally follows a bear (down) market. On average, bear markets in the United States last about 11 months, while bull markets average 32 months. In the past, the average bear market decline was 27%, while the average bull market gain was 119%, though past performance is no guarantee of future returns.

Remember that historically down markets were temporary. More importantly, not only does a bull market erase declines, but in the past, the gains of the previous bull market were extended significantly. Will it always be that way? Unfortunately, no one knows.

Diversification is key to long-term performance

The key to capturing the upside returns of the stock market while minimizing downside risk is diversification. Diversification is a strategy that recognizes the uncertainty in how stocks from various sectors will perform at any time and it tries to balance your portfolio by spreading out risk among various assets. Instead of buying dozens of individual stocks, you can diversify with index funds and exchange-traded funds (ETFs).

With ETFs and index funds, your investments can be allocated among different types of stock indexes to achieve a risk/return profile that matches your own risk tolerance.

If you work with a licensed financial advisor who understands your objectives and risk profile, you can create a diversified portfolio that is tailored to your needs. Learn more about investing in stocks by watching this 10-minute video.

Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call [phone] for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.