What should we do if we hold index funds when the market fluctuates significantly
The fluctuations in the stock market are normal, and for ordinary investors like us, this is very uncomfortable. So, how should we novice investors respond when index funds fluctuate wildly? The editor has compiled here what to do if the market fluctuates sharply for your reference. I hope you will gain something from the reading process!
Do you really understand and be suitable for investing in index funds?
Do you really understand index funds? Do you know that index funds fluctuate very much? Do you know that index funds are actually tool products?
We divide index funds into broad-based indexes and industry theme indexes.
The broad-based index is a fund that tracks the CSI 300, SSE 50, CSI 500, GEM Index, Science and Technology Innovation 50 and other indices, while the industry index tracks liquor, medicine, chips, new energy vehicles, etc. Thematic funds that subdivide industry-related indexes.
Of course, many enhanced index and smartbeta funds are essentially index funds, such as E Fund’s Shanghai Composite 50 Enhanced and Huaxia Chuanghuang/Huaan Chuang 50, which are relatively familiar to everyone.
The broad-based index is suitable for veteran investors. The advantage is that the fee is low, the operation is transparent and predictable, and the average return of the market can be obtained. When choosing an index fund, you need to choose one that is large in scale and has good liquidity. Of course, large scale is not necessarily the best. Veterans sometimes buy small ones to get some new profits.
As for industry index funds, this is actually more difficult to invest in. Things like liquor, chips and new energy are standard items for many Christians. Relatively speaking, liquor is doing slightly better, while chips and new energy are the hardest-hit areas.
To buy this type of industry index fund, you need to meet two conditions:
First, you have a clear understanding of the sub-industry you are investing in and why the industry can rise;
Secondly, you must have the awareness to take the initiative in timing and know when to add positions and when to take profit and sell.
When a certain industry performs well for a period of time, investors will chase it and make trend investments. Some industries have strong market sustainability, while others only end in a few weeks, making it easy to get caught. Of course, if you have a particularly strong belief in a certain industry, for example, if your knowledge tells you that liquor/medicine/new energy is a long-term industry in the future, you can buy it and hold it for a long time or make a fixed investment.
What should I do if the index fund loses money?
When encountering an index fund loss, you should first check whether there is any problem with the index fund itself: whether the industry logic of this index fund has occurred. Has it reversed? Has this industry lost future development opportunities? Or is there major problems in this industry or the investment index due to policy reasons?
After the inspection of the investment product, if the conclusion is that it is itself There is no problem. Next, you should check your own cash flow: Will you be short of money in recent years? Do you expect to need money urgently? Can you generate stable cash flow and continue to invest?
If In the end, we found that there is no problem with the index fund itself, and we can have stable cash flow in the future and stick to fixed investment. Then in the bear market, we revisit Peter Lynch’s famous saying: Whenever the stock market plummets and I worry about the future, I will Recalling the fact that there have been 40 stock market crashes in history, to appease my somewhat fearful heart, I told myself that the stock market crash is actually a good thing, and it gives us another good opportunity to buy at a very low price. Invest in stocks of great companies. Therefore, although index funds are in a bear market of "continuous decline" at this time, this is actually a precious opportunity for fixed investors, because the stock market is at a relatively low point, and if you insist on fixed investment, you can use fixed funds to buy relatively more Fund shares, thereby amortizing costs and reducing risks.
1. Construct a risk-controllable investment portfolio
When we construct an investment portfolio, we must control the occurrence of risks, so do not fill your position. If the market rises too much, reduce your position appropriately. , so that there will be no panic when the market corrects.
Generally speaking, "pre-investment" risk control methods include: choosing funds with more certain upside potential, such as companies with large market space, high competition barriers, good long-term value, and rich product lines. . For fixed investment, you can choose index funds with high volatility, high growth, and high prospects; avoid betting on homogeneous funds, diversify the portfolio allocation, and combine different assets to achieve the effect of "the east is not bright, the west is bright". For example, you can diversify your allocation to the CSI 300 Index, CSI 500 Index, GEM Index, Shanghai Stock Exchange Treasury Bond Index and the Nasdaq 100 Index.
2. Reduce fixed investment costs
When the market falls or is in a bear market, it is actually a good time to buy funds. You can use fixed investment to add positions, buy in batches, etc. to spread the cost.
The fixed investment method is the simplest way to add positions and is suitable for novice investors. If investors are still optimistic about the market outlook and have stable cash flow, they can use fixed investment to increase their positions after the decline. As the index fund falls further, you can also consider gradually increasing the amount of each fixed investment in order to spread the average cost of investment; once the market picks up, the rate of return on capital and profits may also increase rapidly. Furthermore, if you are confident, you can also add a large position at a historical low, and the effect will be better, but the risk will increase accordingly.
The batch buying method means that when the market falls, regular investors can determine the proportion of positions that need to be covered each time based on the specific magnitude of each decline. For example, three times according to the ratio of 30, 30 and 40, buy in batches every time the index fund falls by 15.
The batch buying strategy has a higher return rate than the full position buying strategy in falling markets and volatile markets. Because this method can absorb fund shares at low cost and reduce the average cost when the market falls; thus at a higher point, it can be one step ahead of the full position buying strategy and obtain higher returns.
3. Learn to stop profits
When buying index funds, valuation is a very important reference indicator. If the overall valuation is relatively high and it is in a bull market, there will naturally be bubbles, and the valuation may be very high and continue to rise. At this time, you need to set a retracement value for yourself. If the index fund is adjusted, how much will it feel? When the trend changes, sell decisively.
Assumption: When the cumulative return rate of fixed investment reaches 50 (take-profit signal line), a retracement is considered, and a fixed investment of 1,000 yuan is made every Friday. When the fixed investment rate of return exceeds 50, the maximum retracement threshold will be used to take profit. When the maximum retracement threshold is triggered, all the previous fixed investment amounts will be sold to take profit. Of course, the setting of the retracement value depends on the market. If we set the retracement value of 5, 10 and 15 in the bull market of the GEM Index in 2015, we will find that the retracement value is too small and it is easy to exit prematurely. If we set Based on the retracement value, the final cumulative return rate was only 8.74. After the bull market, it was all in vain. Therefore, we should set a higher retracement value in a bull market.
There are many ways to stop profits for index funds, including the batch stop-profit method and the target rate of return method. For example, if your fixed investment requires an annualized rate of return of 15, and you have made the fixed investment for 3 years, then your fixed investment will accumulate You can consider taking profits when the rate of return reaches 52.
Are index funds suitable for long-term investment?
As far as specific investment strategies are concerned, there is no long-term investment strategy for stock index funds once and for all. Investors should combine different industries and sectors characteristics and choose different investment strategies.
For industries whose long-term development trend is relatively stable and whose demand is less affected by cyclical shocks, such as consumer, pharmaceutical and other industries, investors can consider buying at a low point one-time and holding on to it for the long term. This strategy requires higher timing ability of investors and is more suitable for investors with strong risk tolerance and relatively strong financial strength.
For industry indexes that have large short-term increases and large fluctuations, but have good long-term development trends, it is recommended that investors use fixed investment or batch buying strategies to invest. When the market goes down, add more positions to effectively dilute costs, and wait to take profits in a timely manner after it goes up. This strategy does not require too much consideration of timing issues and is more suitable for investors with low risk tolerance but continuous cash flow.
Index funds are products worthy of attention by long-term investors, as they have many outstanding advantages. On the one hand, as long as the fundamentals of the market or a certain industry or sector are good, significant gains can generally be obtained by tracking certain index products for a long time. On the other hand, index funds also have the advantage of lower fees compared to active funds. Judging from the types of index funds, the returns of stock funds are stronger than those of bond funds and currency funds. Investors can choose an appropriate investment strategy based on the characteristics of the index and their own actual situation.
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