6 Strategies To Profit In Any Market

Investors who don't participate in sound, long-term equity investing are missing out on a wealth-building opportunity.

Originally Published Nov. 23, 2016

So how should you respond to a market milestone?

No one can predict the performance of the stock market. There are some immutable facts, though. The markets will continue to be driven by uncertainty and volatility. Having said that, investors who don’t participate in sound, long-term equity investing are missing out on a wealth-building opportunity. If you check historical records, you’ll find that the average annual return for the S&P 500 has been about 10% since its inception in 1928.

At BLACK ENTERPRISE, we have always advocated in investing for the long haul. Here is some down-to-earth investment advice regardless of market activity. Based on our interviews with countless investment experts over the years, we share these basic but powerful strategies for investing in any market:

1. Don’t Time the Market

In other words, you shouldn’t become too exuberant during huge market advances or panic during market dips.

Our rule-of-thumb: engage in disciplined, long-term investing. It’s true the past can never fully predict future outcomes, but it serves as a valuable reference. Gain professional advice on how to build a long-term portfolio, based on your risk tolerance level and financial goals.

2. Engage in Dollar Cost Averaging

By investing equal dollar amounts at regular intervals, it enables you to purchase more shares of quality companies when the stock price drops, which is a likely event in today’s capricious market. In fact, most mutual funds can be set up as automatic investment accounts.

We also can’t stress enough the value of contributing to employer-sponsored 401(k) and 401(b) plans. It’s a systematic way to build your retirement nest egg. As many of you know, funds are deducted from your paycheck, and you get to invest in an array of investment offerings with tax-free dollars. An added bonus is that, in many cases, your employer will match a portion of your contribution — the maximum is currently $18,000 per year. Since these tax-deferred vehicles are designed for retirement, you’ll face stiff penalties and tax liabilities if you withdraw funds early.

3. Look for Dividend Stocks

With the increasingly unpredictable environment, consider purchasing shares of companies that make cash distributions to shareholders on a quarterly basis. These stocks tend to be high-quality blue chips that can provide you with additional cash flow from a yield of 2% to 3%. Moreover, a regular dividend may provide downside protection.

4. Invest in What You Know

It’s the tried and true process of spotting opportunities by targeting familiar companies, industries, and products. They tend to be market leaders with powerful brands, top-shelf management, and best of all, you will already understand their products and business models.

5. Protect Your Portfolio by Getting Defensive

As the economy continues its excruciatingly slow mend, look for stocks that perform in any market. Pharmaceuticals, personal care, household products, food and consumer staples — products consumers purchase in economies weak or strong — will buoy your holdings.

6. Develop an Asset Allocation Strategy

Diversifying your investments among two or more asset classes can help you stay in for the long haul. One approach, if you don’t want to manage your own asset allocation, is to invest in so-called target date funds. If you’re about 20 years from retirement, for example, you might pick a fund with a 2035 target date. These funds can provide investors with an appropriate asset allocation for their time horizon, and they automatically change the mix to become more conservative as the target date approaches.

Moreover, regularly monitor your equity portfolio and make adjustments across sectors. For instance, gain some foreign exposure; a good rule-of-thumb is to place between 20% and 30% of your equity holdings in international stocks.