Articles - Archived Money Matters

The Stock Market: Tricks of the Trade

Slow economic growth and a volatile stock market may mean a lot of investors are sitting on the sidelines. However, these tough economic times can be a great opportunity if you know a few tricks of the trade…

Diversify. Diversification helps you weather the volatility of the stock market because all your money isn't tied up in one investment. In today's market, many of your stocks may be down, but if you're diversified, you're likely to have some winners, too.

Consider dollar-cost averaging. This is when you invest set amounts of money at regular intervals, like when contributing to your 401(k). When the market is down, you are actually buying more shares for the same amount of money. It's like buying stock on sale. When the market rebounds, you'll own more stock that is increasing in value.

Explore the funds market. Mutual funds are professionally managed portfolios made up of stocks, bonds or both. Advantages: you can invest smaller amounts of money and still be diversified, and there is cost efficiency because your money is pooled with other investors creating collective buying power.

Index funds are mutual funds that tend to mirror the performance of a stock market index, like the S&P 500. Because they are not as actively managed, they often come with low fees and tax efficiency.

Exchange traded funds, or ETFs, are similar to mutual funds in that they track indices (e.g., large U.S. companies or technology stocks), but differ because they are traded like stocks and can be bought and sold throughout the trading day. Note that because commissions are charged every time they are traded, this option could be disadvantageous for the day trader.

For more helpful hints or to begin an investment portfolio, call a financial planner at Local Government Federal Credit Union today at 877.367.5428.