You’re a business owner – act like one
As the most powerful wealth machine ever built, the stock market “democratizes” capitalism To make company property accessible to everyone with only modest means. You can buy stocks of large companies at exactly the same market price as the largest institutional investors Numbers. As a shareholder in public companies, do not see yourself as a “stock market investor”. Think of yourself as a business owner. And entrepreneurs don’t waste energy fretting about daily changes in the “market value” of their company. They focus on adding value to their business through long-term earnings growth. Of course, you have boards of directors and managers who run your business. Regardless of how you spend Your Every day thousands or millions of your employees will be spending you Day on her main task: create wealth for you. And you don’t have to lift a finger. Fantastic!
Whether you own stocks directly or through funds, having the same business owner perspective helps put the largely meaningless short-term ups and downs of the stock markets into perspective.
Find your balance
Determining the portion of your portfolio to invest in stocks versus a safer investment in bonds or GICs is your most important investment decision. Invest in stocks only as much as you are be committed– as a business owner – to overcome market storms. In the worst case, let’s assume that stock values will fall by up to 50% during a future economic crisis, similar to the darkest hours of the global financial crisis in 2008-09.
Ask yourself the following question: What short-term losses in my overall portfolio am I prepared for? tolerate during a stock market crash? Your answer may change over time, but your “tolerable loss rate” can be a useful rule of thumb in determining the right mix of stocks and bonds in your portfolio at any given point in time.
When your “tolerable loss” is zero – in other words, when you are unwilling to suffer losses, including short-term losses – you are in full asset protection mode. You shouldn’t own stocks.
What if you are willing to accept the risk of short-term losses of up to 25 percent of your total portfolio for a high probability of long-term gain? In our worst-case scenario of 50% Market crash, the total value of a $ 100,000 portfolio split 50/50 between stocks and GICs, would drop 25% to $ 75,000. (The equity component would decrease in value from $ 50,000 to $ 25,000 So if your tolerable loss is 25%, you shouldn’t invest more than 50% of your investable assets in stocks and at least 50% in GICs or bonds.
However, if you commit to weathering the storm of a possible 50% short-term market collapse in order to capture 100% of the final long-term growth of the stock market, you can choose to invest 100% in stocks.
As a business owner, prepare yourself mentally for regular stock market declines of 10% to 20%, occasional declines of 30% or more, and even extreme scenarios like the 2008/09 crash and Determining your equity / bond allocation appropriately is fundamental to the long-term thinking required for investment success.