7. How long should I hold onto a stock?
Generally, you should only invest in stocks or stock funds with money that you won’t need for at least a few years, as the market fluctuates and you don’t want to be forced to sell a stock that’s down because you need the money. Investors often have mid- to long-term goals in mind, like saving up for a down payment on a house you plan to buy down the road, or for retirement.
If you’re concerned about a particular investment that’s losing value, go back to square one and think about why you chose it in the first place and what’s changed since. For example, if the company or fund has experienced big management or strategy changes, you might reconsider its place in your portfolio. On the other hand, if nothing much has changed about the company, the price fell in step with the market at large or the sector it’s in, and you believe in the company’s future and projected earnings, it could be worth hanging onto—and, perhaps, buying more shares in—as the market has historically recovered from downturns over time.
8. How long should I hold onto a bond?
Typically, you’d hold a bold to maturity (or when the original amount loaned becomes due) to reap the full benefit of a payback, but you can sell early on the secondary market via a broker. Just understand that you may wind up with more or less than what you paid originally, as the value of the bond may shift on this market. If interest rates rise, the bond’s value may drop—and vice versa. And you may be charged a commission by the broker.
9. How can I tell what’s a normal market fluctuation and what’s not?
Comparing stock performance to an appropriate benchmark is a good way to gauge how it’s doing. For example, on a day when Standard & Poor’s 500-stock index drops, a drop in the price of a large-company stock you own can be expected.
On the other hand, if your stock falls 5 to 10 percent more than its benchmark, you might want to take a closer look at what’s going on with the company and reassess its place in your portfolio. Remember, though, that many individual stocks can experience dips and then rebound. So it’s important to look at what’s triggering the drop in a particular stock’s value, and how it’s performed over the long run, when deciding how to proceed.
10. What should I do when the market drops a lot in a short period?
Don’t panic. A well-diversified portfolio is designed to grow over the long term—and offer some protection against market fluctuations. Keep your longer term goals in mind, and don’t let your emotions drive your decisions.
11. How many bear and bull markets have there been?
The market has cycled between bull markets—or when the market increases 20 percent or more in value—and bear markets—when the market decreases by 20 percent or more—many times in history. From 1926 to 2014, according to an analysis by First Trust Portfolios, there have been eight bear markets, lasting an average of 1.3 years and averaging a cumulative loss of 41 percent. Alternatively, there have been nine bull markets, lasting an average of 8.5 years and returning an average of 458 percent.
12. What other investments besides stocks and bonds can I consider?
For your short-terms savings, consider certificates of deposit and money market accounts. Both typically offer higher interest rates than the average savings accounts and still keep your money secure, though with CDs your money will be tied up for a certain period of time.
Other long-term investments you might consider include real estate and commodities. You can invest in a fund focused on real estate, precious metals, energy or some other sector. Another possibility is investing in a real estate investment trust (REIT), which is like a mutual fund that invests in income-producing real estate. These kinds of alternative investments are generally considered riskier bets, so you may want to limit these holdings to a small slice of your portfolio.
13. Why can’t I invest in a private company?
Technically, you can, but it can be risky, difficult to get into (and out of) and is typically reserved for the wealthy. Recent rule changes from the U.S. Securities and Exchange Commission (SEC) have made it a little easier to invest in private small businesses using online platforms such as SeedInvest and Wefunder.
You used to have to be an “accredited investor” (with a net worth of at least $1 million or an annual income of at least $200,000 for the last two years) in order to participate in this kind of investing. Now, if your net worth or earnings are less than $100,000 a year, you can invest up to the greater of $2,000 or 5 percent of your annual income or net worth (whichever is less) into a small business. Those with an annual income and net worth of more than $100,000 can invest up to 10 percent of their annual income or net worth, whichever is lower.
14. How many different investment accounts should I have?
It depends on your own unique situation. Typically, you should have a checking account for your regular spending, a savings account for your near-term goals (and your emergency fund), and investment accounts for your mid- to long-term goals.
If you have kids, you might have a 529 plan for each of your kids’ college funds. You may also have multiple investment accounts, including an employer-sponsored retirement plan like a 401(k) and an Individual Retirement Account (or IRA), plus a taxable brokerage account (offered by companies like Acorns).
October 4, 2016
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