Market is Flat
When you're driving down the highway looking ahead the street seems very flat yet once you stop to check out the surface of this smooth concrete you see many tiny ridges. The tires and springs of the automobile protect you from shocks and also potholes. To the rider it is extremely comfortable.
Investors who buy individual stocks subject themselves to the daily good and the bad that are like the small ridges of the street and sometimes are shocked by way of a deep price break such as a pothole which could wreck everything. You can find ways for the investor to help make the investment ride significantly less hectic. You can find two choices - mutual funds and exchange traded funds. These have many similarities.
Both are comprised of several different stocks that balance out the daily bumps. Regular mutual funds and ETF's is quite specialized or represent the complete market when index equities compose the fund makeup. An investor may purchase all 500 stocks in the S&P 500 Index either with a typical mutual fund or with the Spyder Index (SPY). Both employ a low expense ratios and could be bought with minimal commissions.
This method does smooth the daily ride, but will not protect the investor from the serious potholes. If the investor will need the time to research the past a century of currency markets history it'll show that there's not been any 10-year period where there's not been market break of from 25% to 40% or even more.
However, there exists a method for the investor to safeguard funds from the major loss.
Both regular mutual funds and ETFs could be divided into many categories and sectors. Some could be very specific in areas. You can find funds that buy only Japanese stocks, or Korean, Chinese, Latin America, European, etc. Others buy only bank stocks, healthcare providers, pharmaceutical companies, transportation, airlines, etc.
Any cursory glance will show there are occasions when certain groups prosper while some are losing value. The truly smart investor or financial planner ought to be invested in the ones that are appreciating and sell out from the ones that turn weak. This is simply not rocket science and any broker ought to know how to take action. If he doesn't, get another broker or financial planner.
Today you can find mutual funds that spend money on other mutual funds and switch from fund to invest in to stay the strongest all the time. They are called fund of funds. You can find very few of these at the moment.
The intelligent investor really wants to take away the potholes from his road to retirement and really should seek to miss them when you are from the market when it has among those disastrous downturns. Make the street as flat as you possibly can and the journey comfortable.