It’s a time-honored investing maxim: Buy low, sell high. But as stock prices soar past their pre-pandemic levels, some investors are beginning to rethink this age-old advice. Following a rollercoaster ride of volatile stock prices over the past year, a surge in equity markets has prompted a fresh discussion about whether this traditional investing maxim still holds true.
1. “An Investment Rule Reveled as Stocks Surge”
As coronavirus vaccinations continue to be rolled out and blockbuster earnings results continue to move the markets, investors find themselves torn between playing it safe and jumping on the bull market bandwagon. But there is a way to have the best of both worlds — a little-known stock market ‘Rule of Thumb’ that could let investors capitalize on the market’s upside while still limiting risk.
The ‘Rule of Thumb’ provides a simple risk-management approach to investing, relying on undisputed principles of the stock market. It states that: The maximum a portfolio should have invested in a single stock should not exceed 10% of the overall portfolio. This makes sense, since no stock is ever without risk, and no amount of research can fully predict whether a stock can remain a good performer over the long term. By following this rule, an investor can spread their risk over multiple stocks, avoiding losses should any one stock find itself significantly down on the day.
- Spread the risk of your portfolio correctly
- Keep the maximum 10% invested in a single stock
- Be mindful of market movements and news
- Continue to research into individual stocks
2. Taking a Look at the Contradiction of Convention
Much of the modern world is constructed of rules; guidelines, principles and conventions that, if broken and not rectified, can often result in consequences. That said, a closer look divulges the idea that these are sometimes challenged and broken by behaviours, attitudes and ideas. Every convention is those that abide it, respected in its own right, and conversely, conventional practices are being questioned even today.
The dissenting voice in these matters has become increasingly louder in 2020, upending all sorts of conventions, both subtle and overt. Take, for instance, the generations-held convention that respect must always be given to elders in their steady walk toward retirement. When it comes to post-retirement benefits that deny health coverage and economic entitlements, the youth of today – especially in the form of advocacy groups – voice the dissonance in outright protests or via platforms like social media.
3. Defying the Ancient Investment Wisdom
Investment takes many forms for different people and not all of them are so-called “conventional” ways of looking at money. Although humans have always put money in banks or in stocks, bond certificates and other forms of securities, there are also alternative investments which are being explored. In recent years, venture capitalists have chosen to invest in concepts such as cryptocurrencies and other forms of digital investments.
The world of venture capital is ever-changing and wise investors know that sometimes, it’s not about strictly following age-old investment trends, but about finding innovative and inspiring opportunities. Investors need to think outside the box, seeking out opportunities that can open up doors to higher returns. The right combination of knowledge and experience, calculated risks and an open mind are essential to make the most of the potential of the current money market.
- Explore new investment opportunities
- Be open to taking calculated risks
- Develop a knowledge base
4. Establishing a New Financial Paradigm?
Change is inevitable, and it is particularly so in the world of finance. As technology and trends continue to evolve, so do our models and approaches to managing money. Recently, the public is becoming aware of the many pitfalls and limitations of traditional financial structures, and a desire to find an alternative system has now taken hold. In order to revolutionize the way we manage our finances, it’s important to establish a new financial paradigm that is free of the shortcomings of its predecessors.
This new paradigm is sure to revolutionize the future of money management. It will focus on ethics, sustainability, and longevity, ensuring that money is used as it should be – to secure a brighter future. By focusing on decentralization, increased access, and user safety, it will allow investors more control and stability when planning for their financial future. Additionally, the inclusion of AI-driven analysis and smart automation will help users gain access to deeper insights about their finances with less effort, providing more accurate data for their decision-making.
- Increased access
- User safety
- AI-driven analysis
- Smart automation
The recent surge in stocks, while certainly inspiring and potentially profitable, has raised some difficult questions about how to evaluate investments, as well as how to determine a prudent investment strategy. Ultimately, every investor will have to weigh the risks and rewards and decide for themselves if this rule is right for them.