This guest post was written by Go Banking Rates, bringing you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide.
After a scorching run from the March 2009 low, there was a lot of uncertainty about the United States stock market heading into 2010. Could it sustain the remarkable recovery or would the myriad of economic maladies finally catch up with stock prices? The fact of the matter is, it’s impossible to tell with 100 percent accuracy and conviction where today’s stocks will end up tomorrow, much less weeks, months or even years from now. The best thing you can do is separate objective information from opinion. Develop a sound investment strategy and stick to it. One of the worst things beginning investors–and even seasoned ones–can do is to be capricious with their portfolio.
The Case for the Bulls
We’re probably not going to enter a new bull market any time soon, but that doesn’t mean that stock prices still can’t close out the year on a high note. While optimists may not have too many indicators on their side to make their case, behind the scenes there’s actually a lot more business activity going on than in recent past. Consumers might not be doing any buying, but companies are definitely in the mood to shop. For example, look at the string of multi-billion-dollar deals in August alone:
- Software-giant Intel Corp. buys security software-maker McAfee for $7.7 billion.
- BHP Billiton, one of the largest companies in the world, is attempting a hostile takeover of Canadian fertilizer giant Potash for $40 billion.
- CenturyLink, the fifth-largest telephone company in the nation, buys Qwest Communications Intl. for $10.6 billion.
- IPO news from popular video site Hulu at about $2 billion, and General Motors Co. at roughly $15 billion to $20 billion.
According to the DealBook.com, the business blog of The New York Times, there have been nearly $200 billion worth of deals done around the world year-to-date. How that translates to the market is another matter. Ironically, another positive for the bulls is the growing fear in the market. Like Warren Buffett, widely considered the greatest investor alive, is known to have said, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Of course, that only works if you know what you’re doing.
The Case for the Bear
Speaking of fear… If you’ve been paying attention to the news, you’d know that the stock market isn’t doing too hot right now. Stock prices have been on quite a rocky slide downward. What’s worse, it doesn’t look to be getting better any time soon. September has historically been the worst month for stocks, and after the pounding the market has taken since May, that’s downright scary. Then there are these goodies:
- Threat of a “double-dip” recession
- Continued weakness in the housing market
- Unemployment is still hovering around 10 percent
- Alternative investments like gold, treasuries and even stocks in foreign markets like China and Brazil are seen as more attractive
These are just some of the contributing factors that are scaring investors out of the stock market. The uncertainty of where the U.S. economy is heading makes it hard for many investors to develop their strategy. So instead, many put their money to work elsewhere, or even just keep it in cash while they wait it out for better opportunities. There’s absolutely nothing wrong with that.
What To Do Now
If you don’t know what to do with your stock portfolio, fear not because you’re not alone. You shouldn’t feel pressured to buy or own anything that you aren’t sure about, or worse, don’t even want. Being in the market for the sake of being in the market is a huge mistake. You’re better off taking that money and putting it in a safe certificate of deposit or high-yield savings account. Although, if you aren’t quite sure where the market is heading but still want to be in the game, you could always hold on to stocks that pay you to wait–dividend stocks. Don’t just look at the ones that pay the highest rate, though. Do your due diligence and look for the right ones for you. Whatever you do, remember it’s your money, so make it work for you and make sure you’re always aware of how it’s performing.
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