How To Approach This Market – The Three Ways To Invest

I had a listener send me an e-mail a while back with this message. “You talk about how much risk is in the market. However, you never tell us what to do.” Well, I am here to give my analysis and teach you how to handle most things as a steward of your God-given assets. Most of the advice that I give is to be taken as general direction. It is a little bit tough to give specific advice when I don’t know your particular situation.

Generally speaking, there are three ways to face this stock market right now. Without question, you could find yourself in one of these three places.

1) Invest defensively – This would simply mean reducing your exposure to stocks and risky bond investments and increasing your cash and fixed investment exposure. I put together an entire analysis on this type of strategy. You can find the paper here.
2) Invest Offensively – There are ways to make money in bear markets or declining markets. They consist of investing in bear market type mutual funds and strategic investment strategy. For more information, you can go here.
3) Buy and Hold – This strategy never really made sense to me. If the risk is increasing in the stock market, it has been a longer-than-average time since we have experienced a bear market, and uncertainty is at a high, then just staying invested because you are invested for the long-term makes no sense to me. Investing is a probability game. If the probability of being invested has a potentially high probability of giving you high returns over the next six to twelve months, then stay invested. If the probabilities don’t seem to be that great, then go to either the first or second strategy.

The bottom line is to commit to strategy and have a sound basis for it. There are plenty of people that would disagree with my assessment of the third way to invest. However, keep in mind that it is extremely tough to just bounce back from a loss of -35%, which is the average loss of a bear market. At some point, we will face that situation again. Cycles still occur. Who knows the timing? At some point, it is important for every investor to acknowledge that timing might be sooner than later. Whether it is now or four months from now, I think that we are at that time.

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