With a continuing volatile market, there are many average investors who want to find good stocks to invest in. the days of choosing an index fund and letting it ride are gone. Instead, investors need to be more active and aware of how the markets are performing, and balance and rebalance their portfolios with that in mind. for anyone who has a broker that says keep just socking away money in your S&P 500 index mutual fund, you do yourself a favor and run, not walk, to the nearest self directed brokerage where you can start to repair the damage caused by formulaic investing advice.
Most average investors are still not made whole since the declines suffered in the market in 2008. Indexes are sitting at 20% or so below their highs. While it’s true that much of the losses were recovered, to continue this type of plan in the face of a continued slowing economy is not prudent. Instead, investors who want to find some good stocks will need to think outside the box. A financial strategy should not just include mutual funds (if it includes mutual funds at all) but should look at individual stocks, exchange traded funds (ETFs) and other vehicles, such as bonds.
One of the ways to find good stocks to invest in is to look at the cash flow of a given company. Relying on debt to run a company, especially in the act of declining or sluggish revenues, is not a way for a company to survive the next decade. Not only is getting credit harder to come by for many companies, the costs will likely go up in the future, and not being able to repay loans out of sales is a recipe for disaster, as we have all recently seen.
Another good way to find stocks is to consider what our society will need in the future. Energy with be all important, as sources of energy are either being depleted or will be phased out due to environmental concerns. Similarly, water resources are being depleted worldwide, and this will affect agriculture as well. Green energy business is being built as fast as possible in China, as well as Europe, so eventually the U.S. will get in the game too, but worldwide this sector is a likely place for growth.
Consider also giving ETFs a try, if you haven’t already. With ETFs, you can invest in domestic and foreign indexes and currencies, commodities and bonds, just to name a few, however instead of minimum balances and high fees, these trade like shares of stock. You can buy one or more shares, and trade at the market, not at the end of the day like mutual funds. Smaller investors can invest in energy, precious metals, and foreign stocks using ETFs, which are usually available only to larger investors. You can hold ETFs in a traditional IRA if you have a self directed IRA, or in a custodial account, or individual brokerage account. Even advisors like Suze Orman now recommend that individuals take matters into their own hands and invest with ETFs, as opposed to blindly investing money in index mutual funds where you don’t have much choice. Unfortunately, for most people who have 401K investments at their place of work, options like these may not yet be available, and mutual funds are probably still the bulk of investments offered by employers who are advised by the big mutual fund companies. But if you leave your company for any reason, you can do a 401K rollover into a self directed account, and start to take advantage of these different investments.
Be aware however that if you are looking to find good stocks or ETFs or other investments for your portfolio, you will have to take the time to learn more about investing, specifically, investing in each of these types of vehicles. Don’t move into an investment until you know what your financial plan is, how this investment fits your strategy, what your entry and exit points are, when whether or how you plan to hedge the investment. Blindly gambling on FOREX or options is only a way to lose your money faster. You can learn quite a bit from a top self directed brokerage, many now have detailed educational materials, virtual trading, screens and discussion groups. Take advantage of these, trade with virtual cash first, and get familiar with how each vehicle fits your financial goals before putting real money behind it.