2020 has arrived and we’ve entered the second month of this year. It has opened new possibilities while also restricting the ones before. One of the best ways to earn money over money is to invest in stocks. But is investing in stocks safe right now? That depends on you and your decision. Stocks have also remained a risky bargain. You wouldn’t want to invest in a security and see it decline over the years nor would you want to miss the opportunity in case they go up. However, investing in stocks is and always will remain safe given the right kind of decisions.
So, in order to invest nicely in this year, you should keep yourselves aware of the different traps and threats that are in the stock market. So let’s start from there to later on discuss the opportunities the new year brings with. Lastly, we will also highlight some “hot stocks” according to credible sources.
David Tice’s Warning
David Tice is a long time investor known for his ability to predict the market trends. His most famous stunt was to sell off his Prudent Bear Fund just before the 2008’s recession.
David Tice warns that the market is going to go down. According to him, “We essentially have exports, commercial construction and residential construction as well as capital spending at recession levels already,”.
However, David Tice had made similar claims in 2012 and 2014 but the market only went up contrary to his predictions.
So does that mean we should ignore his warnings? Regardless of being right or wrong, David Tice’s warnings have a good lesson for us. When the market is going up, then that is not the time to invest. Although, it might appear as counter intuitive, you should always buy stocks when the market plummets.
And this leads us to answering the question when to buy and when not to.
The Right time for the Right security
Investing in stocks that are currently rising at an extreme pace is always a bad idea. This is because, by doing so, you are reducing the premium on these shares. Eventually, if you predict when the stock starts to go down, you won’t be receiving as high a premium as you would’ve if you had invested earlier.
To understand better, let’s take an example. Say a stock is showing handsome amount of growth and is valued at $150 right now. If you buy that stock, then eventually it will either start growing slowly or plummet. Let’s consider that at that time, the stock is valued at $200. If you sell that stock now, your premium will be $50. But in the corner, there is another investor waiting for the price to drop further. Let’s say after its cycle, the minimum worth of the stock goes to $50. That investor will then buy the stock right before market starts to pick up again. Then, even if the stock reaches its peak at $200, the premium amount will be $100, fifty dollars more than what you made.
Hence, David Tice is right in one perspective. If the market is showing sharp upward trend, it is bound to proceed at a decline. That is where the opportunity lies. So whichever stocks you are interested in, you should wait and watch as the stocks begin to decline, as soon as they start picking up again, start investing and holding them. In that way, you will be able to make the most out of your investments.
The Concept of Extra Money
Now that you’ve the perfect timing, what money should you invest. This is an important question as most novice investors think of investing as an alternate to bank. However, you should understand that unlike bank, it is always best to keep your money invested into stocks for at least five years.
Therefore, always consider investing the money that you will not need for at least five years. This should not include the money you will need to run households, pay bills or other kind of chores. Instead, the money you invest should be the sitting around, extra money that you would otherwise not use. Only then, can you expect to grow your returns and fully reap the benefits of investing in the stock market.
Having the Killer Strategy
Now that you know which money to invest, the next step is to develop a strategy for yourself. In this strategy, you should mention how diversified your portfolio is going to be. The amount of volatility that you are willing to take. The time period till you will remain invested and the way you will utilize the money you make and the amount of money you will reinvest.
By keeping an investment plan and strategy, you will know exactly how to discipline yourself according to the investment standards. This is the key in investing as in most cases, the investors who are most successful are the ones who make a well balanced investing strategy and stick to it till the end. Remember, the true benefits in investing are in the long run. So, even when times are harsh, you should stick to your strategy as it will be your only motivation.
Options still left to invest in stocks
The year 2020 brings us with many and a long wait before investing in higher paying stocks. However, that doesn’t mean you should let your money just sit down. Here are a few low risk options that you should invest in before entering the riskier markets.
These stocks are less risky from growth stocks. Mostly, the companies that pay dividends are the ones that are more stable than those that don’t. Hence, as the market recovers, it is best idea to invest in these markets.
Another advantage of investing in these type of stocks are the dividends that they pay. Unlike growth stocks, dividend-paying stocks offer two types of return; 1) monthly dividends and 2) appreciation of stock value. Hence, this gives you the opportunity to receive a set amount every month just by holding the stock. Although, the accumulative return will still be less than growth stocks, the chances of incurring big losses still remain low.
The second type of stocks you should invest in our preferred stocks. Similar to dividend-paying stocks, preferred stocks also offer a monthly income. This gives holders an opportunity to reinvest their money or diversify their portfolio.
However, this is not the only advantage of holding preferred stocks. The second advantage is the low risk that it has. Preferred stockholders are payed before stockholders. This means that if Tice’s view really is correct and a recession is on its way, you will still be protected as you will be compensated for in case of bankruptcy. Hence, investing in preferred stocks is also a good option.
If you still want to earn bigger returns, then you will have to invest in stocks of companies that are outperforming S&P500. These stocks, although riskier than options above, have remained stable and will remain so till the next few years. Following are examples of such securities:
- Amazon (AMZN)
- Costco (COST)
- Axxon Enterprise (AAXN)
- Tempur Sealy (TPX)
- Splunk (SPLK)
All of these companies have shown a stable run in the past few years. Analyst also believe that these companies will remain more or less stable for the next few years. The accumulative average growth of these companies remain between 6%-10%. Hence, they are good choice to invest in under the given conditions.
Dividend stocks are also an important asset to invest in right now. Here are a few examples of companies you can invest in:
- Exxon Mobil (XOM)
- Kraft Heinz (KHC)
- Hormel Foods (HRL)
- Molson Coors Brewing (TAP)
- PacWest Bancorp (PACW)
Although, these options do not provide the same amount of return as do the growth stocks, they still offer handsome amount of dividends. Therefore, your strategy for 2020 should be to invest in these dividend paying stocks while waiting for growth stocks to go down again. When the time is right, use the money you earned from dividends to buy the growth stocks at lower prices. In this way, you will not only diversify your portfolio, but will also be able to stay ahead of most investors.
Hence, even though 2020 is showing some threats towards invest in stocks, if you do it wisely you can still make the most out of it. The key is to invest in the right kind of money, develop the perfect strategy, watch your securities closely and know when to buy and when not to. This kind of decision power will help you stay afloat even in the tough times of 2020 and prepare you to buy when everyone else is selling. Only then will you able to reap the most out of stock markets and rise as the top investor of 2020!