You ask, “How do you make money in stocks?” Some will say you buy low and sell high, using a trite phrase offered with a simple grin.
But, in fact, what do people do, especially unadvised investors? They buy high and sell low because they react to their “gut instinct,” which is almost always wrong in the long run.
How in the world does this happen?
It’s easy to follow the crowd, to initiate and add to investments when the news is all good, the economy is strong, and recent profits in stocks make confidence levels high.
Then, the news becomes grim, the economy gets soft, stock prices turn downward, and paper profits in the account disappear. The gut instinct screams to the brain, “Don’t just sit there, do something, get me out!”
The problem with getting out is the decision about when to get back in. It means you have to be right on the choice to sell, and then if market prices actually do go lower, you have to pick a point, and act, and get back in at just the right time. It sounds simple, but it’s not easy.
A better plan is to build the right balance of stock mutual funds and fixed income and to plan on permitting this portfolio to work for you for many years (in fact, a couple of decades at least will likely yield the best results).