August 25, 2017

Dealing with stock fluctuations

Michael Stadler from Osteopathy Central would now like to know how he should deal with the strong fluctuations of the stock market. If the volatility is so high, then surely there is a big chance of a loss!

No matter at which point you choose to start investing, chances are always high that you might be wrong. This applies to all investors. Why are others so successful?

A simple trick to deal with the problem of stock price fluctuations is the so-called "dollar-cost averaging". Dollar-cost averaging means that you invest a certain amount of money over a longer period of time. With this approach, the average price of the shares can be reduced in case of a falling stock market.

An example of this: How should you invest savings of CHF 20,000?

If you spend the entire amount on one share, it’s possible you will lose a lot of money in your first month, because statistically speaking every second month is a negative month.

It is better to divide these 20,000 francs into four parts, for example, and to buy one share with each of the four quarters. Suppose you invested the first 5,000 francs in the first quarter and the share loses value, what now? Get angry? No!

Fortunately, you only invested a quarter of your total amount. As a bonus, you now can now buy the shares for the three remaining investments at a more favorable price because the stock markets have gone down. So you can go on a bargain hunt.

The best time to invest is when everyone says you should not invest. You could go so far as to say that having a bad feeling about investments is good.

The most important principle for investing in stocks is doing it on a regular basis. Don’t let the fluctuations of the markets or the predictions from smart people influence you. Invest your fixed amount undeterred.

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