In financial speak, the performance of the stock market can be described in animal terms—a bear market or a bull market.
The origin of this animal terminology is uncertain. One explanation goes back to 18th century England when the middlemen of bearskin sales were called bearskin jobbers, or bears for short. They would often sell the skins they didn't even have yet at speculative prices—and risk losses if the trappers decided to sell at higher-than-anticipated prices. The practice leant itself to a French proverb that translated to: "Don't sell the bear's skin before you've killed him." The term bear stuck for describing a down market. And bull was considered the opposite because bull-and-bear fights were popular at the time. So bull markets are when stocks are charging upwards.
What are we in now?
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I'd call it a bunny market.
Erase visions of Bugs Bunny or Roger Rabbit from your mind. A bunny market is a stock market that zigs and zags, but doesn't really go anywhere. And just because the market is only hopping along doesn't mean it's not a good time to invest.
Here are some tips for investing in this bunny market:
1. Take baby bunny steps.
If your current financial situation feels unsteady, I suggest starting small. Even modest investments of $100 or $200 can make a significant difference in building wealth. And the systematic investing of smaller amounts, or dollar-cost averaging, in a 401(k), Roth IRA or 529 plan can add up over the long term. It's always a good idea to take advantage of the time value of money and capture all the tax-deferred or tax-free growth you can.
You can apply this strategy to other parts of your overall financial picture, too. If you are thinking about purchasing a house, consider buying an item or accessory for your new house. For example, buy a clock and hang it up in your current home to remind you of good times to come.
2. Research before buying.
I want my clients to be informed prior to committing to a large purchase or investing in a business or product. If the business is established, look at the company's mission statement and financial reports online. Thorough research can help ease unnecessary financial stress.
3. Take your time and check your risk tolerance.
Back to bunny imagery, think about the tortoise and the hare. I always tell clients that it’s not prudent to rush into anything if you don’t feel comfortable. Could it be butterflies in your stomach, or maybe something is telling you that the investment is a bad idea? You can always turn down an investing opportunity. In the end, the only thing wasted is your time. Of course, your time is valuable, but the bottom line is you don't want to lose your money by making quick but bad decisions. Remember, slow and steady wins the race. You need to give yourself time to understand the why behind your investment decisions and confirm whether it aligns with your long-term financial plan.
4. Work with an adviser you trust.
The best advice is to invest in building a relationship with a CFP® professional who can help you develop a financial plan. Especially if something is bothering you about a decision, you can talk with your financial adviser and take comfort in having a knowledgeable expert help you stay on track while the market continues hopping all around.
Marguerita M. Cheng is the Chief Executive Officer at Blue Ocean Global Wealth. She is a CFP® professional, a Chartered Retirement Planning Counselor℠, Retirement Income Certified Professional and a Certified Divorce Financial Analyst. She helps educate the public, policymakers and media about the benefits of competent, ethical financial planning.
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