Investing in the stock market doesn’t have to be difficult or time consuming – follow these tips to improve your results. Spend less time, get better profits, reduce your risk and lessen your draw-down. Diversify your holdings Pundits and financial advisers advise you to diversify your holdings. Decrease your risk by investing in different sectors of the stock market. Diversify by buying unrelated stocks, too.
Leveraged ETFs
The SPX doesn’t usually move as fast as an individual stock, so many people are dissatisfied trading the SPX. You must have a long-term horizon, or use leverage. Get the leverage you desire by trading leveraged ETFs like SSO and SDS .SSO is a leveraged ETF that represents the S&P 500, or SPX and SDS is the 2X bearish leveraged ETF. For example, if you get a 5% move in the underlying, SPX, this translates to a 10% move in your SSO or SDS. You can trade the bearish ETF, SDS, if you want to profit from a falling market – even in your IRA account.
Earnings Announcements
As a stock approaches their earnings report, the stock usually rises in anticipation of a good report. What happens if the earnings report is not good? People anticipate an excellent earnings report, and if the report is less than excellent, the stock will crash. This is so frustrating. Why hold a stock over earnings? It is best to profit by the rising stock price, but get sell out your shares before the earnings announcement. Be careful here. Sometimes they announce before the open. Sometimes they announce earnings after the close. Sometimes, you will be sorry you sold before earnings, when the stock rockets up. That’s OK, because the likelihood of that happening is about one in five.
Study Time
Who has the time to go on to the various websites and discover the scheduled earnings announcement date and time? If you hold ten stocks, this can take a great deal of your time. If you hold an ETF, the ETF has earnings dates distributed over time.
Volatility Risk
Buying one stock is potentially very risky. Be careful about taking on too much risk. You can do well if you buy an individual stock. However, you will need to study the K-10, the industry, the history, the management, the competition, and the overall sector in which they reside. Who has this much time? Can you make this much time available? Most investors don’t approach their investing this meticulously. There are usually a large number of stocks in an ETF. This will tend to safeguard you from choosing the “wrong” stock.
To summarize
You must control risk, if you want to be successful at investing. To help you to lessen your risk, you should diversify your holdings. This can be accomplished by buying an ETF. Keep it simple, don’t hold a stock through the earnings announcement – sell out your holdings just before the announcement. Stop studying your stocks. Instead, just study the sector or industry that the ETF you are considering represents. That takes much less time, and the results can be excellent if you trade the leveraged version of the ETF.
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