Years ago, I had a little trick. I used money for bookmarks. It always meant I’d have a little cash — if I needed cash. Nowadays, I just use my credit card like everyone else — but every once in a while, cash is wanted or needed.
Why did I do this? Well, it was basically my little emergency fund. I always knew that if I needed a couple of bucks, I had it on hand.
I don’t do this as frequently anymore. But, the other day, I was pleasantly surprised when I found a $20 tucked away in a winter coat. I felt like I had won the lottery.
Obviously, this isn’t a solid investment strategy. After all, you’re not earning interest or making that many contributions. However, it’s great for a rainy day or for small purchases. And, for the most part, it doesn’t lose value. That means you can hide a $50 bill and know that it’s still going to be a $50 bill when you go to use it.
That’s not exactly the case with investments you have in the stock market. Just look at the roller-coaster ride of 2020 as an example. The year started off strong, but then COVID-19 struck and wrecked the economy. It rebounded a little by the end of 2020. But, some still fear that a “double-dip” recession is looming.
More recently, there was the wild GameStop ride. There were a lot of lessons to learn from it. But, one takeaway was just how fragile the market could be.
If you have anything invested in the market, then you need to stay aware of what’s going on, so that you can continue to build your wealth.
Why you need to stay up-to-date.
COVID and GameStop could be considered outliers. Usually, investors want to stay-in-the-loop for the following reason.
There Are Different Types of Stocks
“A stock is an investment into a public company,” clarifies Arielle O’Shea for NerdWallet. “When a company sells shares of stock to the public, those shares are typically issued as one of two main types of stocks:”
- Common stock. For newbies who are looking to get their feet wet with investing, here’s your best option. “When you own common stock, you own a share in the company’s profits as well as the right to vote,” explains O’Shea. “Common stock owners may also earn dividends — a payment made to stock owners regularly — but those dividends are typically variable and not guaranteed.”
- Preferred stock. Compared to bonds, this type “pays investors a fixed dividend.” As a preferred shareholder, you’ll “also get preferential treatment: Dividends are paid to preferred shareholders before common shareholders, including in the case of bankruptcy or liquidation,” adds O’Shea. Also, there aren’t as volatile, “which means shares are less prone to losing value, but they’re also less prone to gaining value.”
Additionally, common and preferred stocks can be further broken down and may change over time.
- Company size. “Large-cap (market value of $10 billion or more), mid-cap (market value between $2 billion and $10 billion) and small-cap (market value between $300 million and $2 billion).”
- Industry. Also known as sectors, i.e., energy. Stocks within the same industry can move together “in response to market or economic events.”
- Location. For the most part, this is self-explanatory. However, a company can be based internationally or in an emerging market.
- Style. Stocks are often described as growth or value. “Growth stocks are from companies that are either growing quickly or poised to grow quickly,” states O’Shea. “Value stocks are essentially on sale: These are the stocks investors have deemed to be underpriced and undervalued.”
Short-Term vs. Long-Term Investments: Dawn of Investing
“A short term investment is any asset you hold for one year or less,” notes Eric Reed over at The Street. “Most investors hold short term investments for no more than a few months at a time, if not several weeks.” Common with day trading, these are often comprised of volatile assets like stocks, options, and ETFs.
“A long term investment is any asset you hold for more than one year,” adds Reed. “Most investors hold long term investments for several years as part of an overall strategy for their portfolio.” You’ll find these in a 401 (k) plan or long term savings account.
Depending on your investment strategy, each serves a different role. These include:
- Volatility. This is key for short term traders.
- Smaller movement. “Short term investments tend to seek out positions that will gain or lose less value than long term investments,” says Reed. “A trader has less time for a short term investment to regain any value that it loses, so they tend to look for safer products which will post some gains in the immediate future.” Those “who hold short-term positions tend to try to make up for smaller gains by making more frequent trades.”
- Aggressive. Because they can absorb losses, long-term investors can occasionally be more aggressive.
- Passive vs. active investing. Looking to earn a passive income? Long-term investing is the way to go. For shakers and movers, you’ll be more active.
- Immediate vs. horizon goals. If you have an immediate goal, like going on a vacation, short-term investments deserve your consideration. Horizon goals, such as retirement, are better suited with long-term investments.
External Factors at Play
“While the performance of an individual company varies in the stock market due to news about its performance, such as earnings reports and acquisition announcements, there are outside influences that will affect stocks and the market as a whole,” states Wayne Marks for Zacks.
These factors include, but aren’t limited to:
- Economics. Interest rates, inflation, unemployment, and economic growth are examples of macro-economics. And, each can move stock markets. You need to pay attention to these as they can “predict whether the market as a whole will go up or down,” writes Reed.
- Politics. Scenarios like elections, domestic turmoil, and trade deals can fluctuate the market.
- Natural and man-made disasters. Stock prices can be directly impacted by hurricanes, a global pandemic (COVID, anyone), or an oil refinery that caught fire.
- Market psychology. “At the end of the day, swings in the stock market are caused by human beings,” Reed states. “There are boom periods in a rising market when everyone wants to buy. Alternatively, there are also periods of panic when almost every investor is scrambling to sell.”
Simple ways to stay on top of financial markets.
Hopefully, you now realize just how important it is to stay aware of the market. However, that might be too time-consuming for most people. Thankfully, you can use the following tactics to remain in the loop with ease.
Know your stock’s ticker.
For those who are just starting out on the market, this is simply a unique set of letters. They’re assigned to securities strictly for the purpose of trading. Those that are traded on theNew York Stock Exchange (NYSE) can have four or fewer letters. However, Nasdaq-listed securities will have up to five characters.
If you know the stocks that you’ve invested in, you can do a quick search to how they’re performing. You may also be able to see how the company is projected to perform.
Just a word of caution. Some stock tickers are straightforward. For example, on the Nasdaq, Tesla is TSLA and Amazon is AMZN. But some can be confusing, such as Southwest, which is LUV.
In addition to conducting a quick search, there are live tracker sites like Yahoo! Finance, Google Finance, and MarketWatch. For those who really want to be in-the-know, like daytraders, there are desktop widgets and apps as well. Some that are worth mentioning are:
- Investing.com
- StockTwits
- JStock
- Real-Time Stocks Tracker (Apple)
- Finance Toolbar – Real TimeStock Tracker (Chrome)
- Stock Desktop Widget
News websites and apps.
If you want to stay abreast of your portfolio, but don’t need to be paying attention to 24/7, you can turn to financial news websites. I already mentioned several above. You also can’t go wrong with tried and true sites like Bloomberg, CNN Money, CNBC, Fox Business, or The Wall Street Journal.
Looking for more niche sites? Here are some of my favorites:
- Investopedia is perfect if you’re just starting out. It’s a treasure trove of information and resources.
- Looking for advice and emerging trends? Kiplinger has got you covered.
- The Financial Times is your go-to source for fiscal policies.
- The Fintech Times is geared towards, well, financial technology news.
- Need to say updated on trending news around the world? Look no further than Seeking Alpha.
You should also check-out thinkorswim from Ameritrade. It’s a trading platform available on desktop, Google Play, or the App Store that allows you to research investments. There’s also live chat support and a live CNBC news stream.
Sign-up for newsletters, RSS readers, and Google Alerts.
Most of the sites listed above also have email lists that you can sign-up for so that you can receive financial news directly to your inbox. Personally, I’m also a fan of Morning Brew. It’s a newsletter that arrives in your inbox every morning. The content is humorous and easy-to-understand.
If you want to personalize the information that you’re receiving, then make the most of your RSS reader. I use Feedly. If you’re not familiar, it’s a news aggregator that allows you to subscribe to relevant news feeds, blog posts, and other Internet content so that it’s all in one convenient location.
Or, you could sign-up for Google Alerts. What’s great about this is you can set up exact keywords so that you can be as specific as you want. After you’ve set up your preferences, you’ll receive an email alert whenever a related story is published.
Listen to podcasts.
If you’re on your computer all day, like yours truly, you need a much-deserved break from the screen. That’s why I enjoy podcasts. I can listen to them when going on a walk, traveling, doing household chores, or relaxing at the end of the day.
While there are some podcasts that provide daily or weekly recaps regarding the market, this is a better option if you’re a long-term investor. Some recommendations are The Investor’s Podcast, Motley Fool Money, Investing Insights from Morningstar, Fresh Invest, and CNBC’s Fast Money.
Let an online portfolio/robo-advisor do the heavy work for you.
If you’ve only invested in a stock or two, then manually keeping tabs on them isn’t much of a problem. But, it can get tricky when you have several different stocks. Thankfully, you can use Google Finance’s free watchlist tool you can use to watch for stocks, ETFs, etc. Mint also has an investment tracker as well.
Or, you could go the robo-advisor route. These tools have gone mainstream. And, for good reason. You can build a customized portfolio and start trading at a low-cost. Best of all, they navigate the complexities for you and are programmed to make the most sound investments on your behalf.
Some noteworthy robo-advisors include:
- Betterment
- Fidelity Go
- Wealthfront
- SigFig
- Ellevest
- Personal Capital
- SoFi
