Almost everyone who has money in the stock market has lost money in the last year and a half. This makes it difficult to get any confidence back and have any faith that the market will go up again. Having it go down so far and so fast has probably unnerved quite a few investors.
Getting the confidence to put more money in the market after having it perform so poorly is something that does not come easily. After all, whos to say it wont just turn around and go back down again? Figuring out a good reentry point is something that seasoned investors would have a much better chance of figuring out than the beginner. However, we do know that at some point, it will be the correct time to start buying again.
When you buy more stock at lower prices than you already own some shares, it is called averaging down. For instance, if you own 100 shares of ABC corp. at $100 a share and then you buy 100 more shares at $50 after it has gone down, you will now own 200 shares at an average price of $75.00. You will have averaged down the price of your shares. This is what we will all be doing when we buy back into the market.
Although it may be tempting to buy more of what you have and to average down, it might not be the smartest choice. Most economists and stock market analysts agree that you should be diversified in your investments and that might mean buying other company stocks instead of the ones you already own. It also could be done by buying other types of financial investments such as treasury bills or bank CDs. A good investor never has too much in one asset as that would expose them to too much risk.
If this terrible market environment we have had now though, even those who were properly diversified have lost. Nothing can protect you from losing when the market goes down as much as it has and that is something you must be aware of and accept. Investing in stocks is risky and you should never invest money that you cannot afford to lose. Shortly though, it will be time to get back in the market and those that have strong stomachs will be the ones who stand to profit.
Do you want to learn about buying stocks for beginners? If you would, please visit my site Stocks For Dummies.
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