Last Updated: February 9, 2023

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It’s been a rollercoaster of a year for financial markets. In February 2020, global stock markets reported their steepest one-week declines since the global financial crisis. Three weeks later, the price of crude oil fell by a staggering 26% due to geopolitical tensions and a drop in global consumer demand. Less than two months later, the stock market rallied 11.4% to their largest one-month gain since 1987 on the heels of federal repo operations and a reopening economy.  

The fact is, no bull market or recession can go on forever. Change, as they say, is the only constant in financial markets. A changing policy environment, central bank intervention, or global health development can swing your portfolio’s value like a pendulum.

Fortunately, you can shield your savings and investments from losses in a changing market by—perhaps ironically—abiding by unchanging rules of investing proven to build wealth over time. No matter your age, time horizon, income, or goals, the basic principles of investing hold true. 

Don’t Be Reactive in a Bear Market

The United States entered a bear market in March 2020 after the S&P 500 fell over 20% from their recent all-time highs reached only a month prior on February 19. Since then, the market rallied sporadically throughout April and May, causing some analysts to question whether we’ve re-entered a bull market amid recent comebacks in the US equities market. 

Given how fickle financial markets are, it’s important to not adjust your portfolio reactively. Shuffling your holdings in response to market activity, more often than not, results in greater losses over time than simply leaving your portfolio untouched through a bear market. This is especially true if you’re a younger investor (i.e., >10 years until retirement) who can afford to wait out the market before taking distributions.

Know the Basics of Fundamental Analysis 

If you’re going to pick stocks, you need to know the basics of fundamental analysis. To do this, you need to familiarize yourself with the company’s balance sheet, income statements, and cash flow statements. This way, you can value a given company and make an educated judgment about whether or not to invest in it. 

Although there are plenty of useful guides floating around online about how to do fundamental analysis and security analysis, you should start by simply taking a cursory glance at the company’s structure and performance history. Before picking a stock, ask yourself the following questions:

  • Who’s their CEO?
  • What is their quarterly performance history?
  • What’s in their product pipeline?
  • What are their financials (i.e., sales, debt, cash on hand)?

Hold Cash

Depending on your risk tolerance, you may want to consider allocating between 10 and 20 percent of your portfolio in cash. Having cash on hand will allow you to quickly respond to opportunities such as dips in the market. Since pullbacks are a regular feature of uptrends, they can be exploited for short-run gains as the price of an asset rises over time. 

Although buying the dip can result in significant short-term trading gains, it’s generally advised that unsophisticated investors stay away from reactivity to daily price movements. What may look like a dip in the market might be a signal of a downtrend, which can cause you to grudgingly hold an asset long-term that’s continually declining in value. 

If you do, however, decide to buy into a dip or other market opportunity, you can replenish your cash on hand by selling stock when a position spikes. 

Start Early

It should go without saying that the earlier that you start investing, no matter the asset class, the greater your returns are going to be by the time you make your first withdrawal. The power of compounding is that your earnings can be reinvested to generate even more earnings over time. In other words, the money you reinvest will continue to work for you to generate even more money over the duration of the investment period.

Time is the greatest tool we have for building wealth. To demonstrate, let’s assume an average annual return of 6.28% (the Dow Jones Industrial Average return from 1956-2018), an annual investment of $6,000 beginning at age 35 would yield $498,292 by the time the investor retires at 65. If the investor had started at age 25, they would double their wealth at retirement by yielding $996,536 at the same rate of return.

Properly Diversify Your Portfolio

The most important rule of investing is to diversify your portfolio. Although you might be tempted to load up on penny stocks, you should temper your inclination with the knowledge that non-diversified funds historically perform worse than diversified ones due to their exposure to volatility, credit risk, and equity risk. 

Check out our reviews of Noble Gold, or our Broad Financial Review to read about some of the most reliable online brokerages for precious metals and cryptocurrencies. These are excellent resources for those starting out with alternative investing who may be interested in adding cryptocurrencies or precious metals to their IRA or 401(k). Adopting this financial strategy will help protect your wealth no matter what way the financial wind blows because these assets are largely non-correlated to the US equities market. 

Putting It In Perspective

It’s a small wonder why Benjamin Graham’s The Intelligent Investor, a definitive guide to value investing first published in 1949, is still used by retail and institutional investors to this day. For over 70 years, the basic rules of investing have held constant: be proactive, invest early, and properly diversify.

No matter what asset class you’re interested in investing in—from alternative assets such as tax liens investing or fixed annuity investing to traditional securities like stocks and bonds—it’s critical that you spread your wealth across a variety of financial instruments and commodities. This way, you can reduce risk within each asset class and, since markets rarely move in concert with each other, can hedge against poor performance by any one asset type. 

Liam Hunt

Liam Hunt, M.A., is a financial writer covering global markets, monetary policy, retirement savings, and millennial investing. His commentary and analysis have been featured in the New York Post, Reader's Digest, Fox Business, and Forbes.