From surviving to thriving in financial markets: 6 top investing tips for 2021
The stock market has been through an incredible roller-coaster; investors have been through some of the most volatile trading sessions in recent history. Yet, there are many lessons we can learn from 2020 to ensure profitability throughout the year.
Below are 6 investing lessons for 2021:
1. Staying calm even when markets panic
The start of 2020 saw a bullish sentiment as markets reached new highs… then March 2020 hit, and markets went into a free fall. Panic set in causing clients, investors and stakeholders to sell off stocks. One of the biggest market crashes was experienced by the oil industry, which tumbled from a high of $64/barrel to a near-overnight low of less than $20.
A few months after the initial crash, global markets began to recover. Those unphased by the initial panic were able to capitalize on market volatility. It’s easy to get caught up in the emotions of financial markets. If you stay calm, watch trends and implement strategies to manage “emotional trading” you could see your way to profitability even in adverse conditions.
2. Diversify your portfolio
Investors are warned to never put all their eggs in one basket and no year proved that advice more correct than 2020. In March, the S&P 500 tumbled by more than 12% and Crude oil dropped by 55%. Investors in gold however were smiling as the precious metal skyrocketed above the $2000 level. It’s easy to be caught up in one specific market and tailor your strategy accordingly. A diversified portfolio will help you overcome unforeseen disasters while staying profitable.
From equities to Index/Bond Funds, a simple diversified portfolio minimizes risks and reduces panic selling.
3. Markets are unpredictable especially in the short-term
The 2020 US presidential election highlights how volatile big events can be in the short-term; despite predictions for nationwide protests, the markets rallied within days following the election results.
Many market observers expected to capitalize on a bearish sentiment during the elections though those predicting long-term stability by trading in a post-election environment achieved great success.
It’s better to focus on developing a trading strategy that you can stick with over the long-term than trying to predict markets daily and react accordingly.
4. Volatility equals opportunity
As the markets crashed in 2020 some savvy investors and companies not only managed to shirk off the worst of the financial collapse, but ultimately thrive in a climate marred by the recession. A good example of this is the eCommerce boom and office-communication app Zoom. In a year marked by lockdowns, home deliveries and shipping skyrocketed. Amazon has reported record earnings throughout 2020, Zoom surpassed the $100-billion market capitalization. The point is when some see only doom and gloom, others see opportunity amidst the volatility.
Spotting trends and predicting possible opportunities in the market is the key to profitability.
5. Timing is everything
Earlier we mentioned how gold skyrocketed in 2020 yet if you traded gold at the tail-end of that year you would not be very happy. Investors predicted that the commodity could reach $3000/ounce and given its performance this was indeed highly possible. Even major investors such as Warren Buffet (an anti-gold trader) snapped up the precious metal, causing the price to spike higher. Unfortunately, those that purchased gold earlier in 2020 were seeking to make a profit and as a result, sold their stock. This created a selling frenzy, causing the price to plunge.
The point is timing when to buy/sell is mostly luck. A better strategy would be time spent in the market rather than trying to time the market. The gold price is climbing and those that are purchasing the commodity at its low price, relative to its high of +$2000, will be smiling if they can hold on to their investment.
6. Things could always get worse
The scourge of the pandemic has followed us into 2021. Despite vaccines being rolled out in many countries and a global economy in recovery, the first month of 2021 is seeing a “second-wave” of infections prompting renewed lockdowns and economic shutdowns.
The energy sector has and will see major changes. The oil industry has been irreparably damaged by low travel and production demand to the point that Shell has changed its entire business model; the energy giant has begun decommissioning oil platforms and refineries as well as focusing on renewable “green” energy. The entire sector has lost more than 50% in 2020 and this is predicted to be worse this year.
There is no guarantee an investment will bounce back, and portfolio diversification is key to minimizing your risk, especially when it comes to long-term investments. Recognizing when to stay the course or jump ship is imperative to staying profitable.
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