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THE FISCAL CLIFF IS LOOMING, and let’s face it, the stock market has been tumbling since the day after Election Day 2012.
What can the small time investor do to protect his/her investments?
A few options seem practical, but don’t sell all of your stocks right away and escape into treasury bonds just yet.
Here are a few stock investing strategies for the individual investor.
1. Buy Low, Sell High
Basically, a down turning market is a good time to buy stocks, as the old adage of buy low, sell high also applies in all aspects of the stock market. Warren Buffett, of course, is one of the wealthiest billionaires in the world, and experienced on the whole concept of buying low and selling high, as he typically has invested in great companies that were undervalued yet had the fundamentals to achieve greater success and a higher stock price.
2. Invest in Dividend Stocks
A good percentage of your stock portfolio should include dividend stocks from historically top-performing companies.
But be careful when investing in high dividend stocks, as the fundamental and financial aspects of the company might not be all that sound. There is a reason why some dividend stocks have such high dividend yields, as a company is luring you into investing in their stock.
I try to further divide my stock portfolio between stocks for long term growth, and stocks for short term. And hopefully, as a stock grows in price and it has quarterly dividends that allow the portfolio to still produce earnings even when the stock market is down.
3. Invest in Small and Large Companies
Have a good balance between small and big market cap stocks.
It is sound investment strategy to also divide your stock portfolio between small and large companies. This will help minimize the risk potential, as smaller companies might have the risk of failing, and larger companies are generally stable enough to endure tough times.
4. Invest in Different Sectors
Basically, don’t put all your money into the financial sector, or any one industry, like banks.
Spread the portfolio between at least 2 to 4 different sectors (perhaps more for larger portfolios), so that when one sector (like the financial sector) isn’t performing well, you will have a few other sectors that will pick up the slack. Of course, when the entire market is falling that’s a different story.