ISA Investing – The 7 Key Lessons – Part 1 of 2
By Stephen Sutherland, author of Liquid Millionaire.Posted in the Category of ISAS, Investing, Stock Market, Investment Fund, Wealth Building on 16th December, 2009.
Tags: isa, isa investing, stock market, stocks and shares isas.
ISA Investing – Lessons 1 – 4
I am a firm believer in the benefits of ISA Investing. However many potential investors are missing out on these benefits because they find the stock market
intimidating.
Some financial advisers will make out that the market is very complex – however, the way it works is probably simpler than you think. In this series of blogs you are going to learn seven lessons explaining the fundamentals about how the stock market works, and how you can benefit from these lessons by investing in Stocks and Shares ISAs.
Lesson 1 – Markets keep going higher
Most Britons have heard of the FTSE 100 but fewer have heard of the S&P 500. The FTSE 100 is an index in the UK that has the top 100 companies trading in it. The S&P 500 is the United States equivalent and, you guessed it, this one has 500 companies trading in it.
The thing that both of these indexes have in common is that their long-term trends are up.
After every bear or down market, stock market indexes always eventually move into new high ground.
Lesson 2 – The Market Works in Cycles
Did you know that historically, bull markets or up markets have lasted between two and four years?
Bear or down markets tend not to last as long. Bear markets tend to last between nine and eighteen months and therefore are much shorter than bull markets. Because bull markets last longer, the stock market forms an uptrend. It’s like a staircase effect where you have three stairs up and then one stair down.
Lesson 3: Three out of every four stocks (and funds) move in the same direction as the market
Because three out of four stocks move in the same direction as the market, the performance of the funds you choose to be protected by your Stocks and Shares ISA will be directly linked to the market’s direction. That’s because investment funds own a large portfolio of stocks. And so if the market is trending up, three out of every four funds will move up.
But if the market is trending down, three out of four funds are going to move down. And if the market is trending sideways three out of four funds are going to move in which direction?
Yes, you are correct–sideways.
When the market takes a heavy fall, investors who do not know how the market works will probably blame either the fund manager or their advisers for their losses.
But what they really should be doing is noticing and understanding the link between their fund value dropping and the market heading downwards.
You see most investors do not know that three out of four stocks will always move in the same direction as the market.
That means even if you own a fund that is managed by one of the best fund managers in the world, if the market takes a dive, that fund you are invested in will also be likely to take a dive.
Lesson 4: The stock market can be timed
Opinions are divided on whether the stock market can be timed or not. At ISACO, we strongly believe that markets can be timed – although it is not easy to time markets accurately.
So where do you start?
First of all you need to understand how to read and analyse the stock market’s health.
To do this, you have to observe and study the major indexes carefully. Here they are:
• The Nasdaq Composite
• The S&P 600
• The S&P 500
• The Dow Jones Industrial Average
As well as watching these four indexes, it’s crucial to watch the behaviour of leading stocks and leading sectors.
By studying these four indexes plus the action of leading stocks and leading sectors – each and every day, you can come to realise meaningful changes in the daily behaviour at key turning points like market tops and bottoms and learn how to capitalise on them.
Find Out More
In Part 2 of this series I will be sharing with you the final 3 key lessons in the stock market so that you too can benefit from investing in Stocks and Shares ISAs. In the mean time, if you would like to find out more please click here for a FREE sneak preview of my book, Liquid Millionaire.
Happy reading!
Your friend,
Stephen Sutherland
The UK’s Leading Authority in ISA Trend Investing and Author of Liquid Millionaire
Please Note: As always, let me remind you that I am not a financial adviser and therefore not authorised to give advice on what investments to buy or sell.
We endeavour to deliver quality information, ideas and personal opinions on stocks, funds and the general market. However, the information, ideas and personal opinions provided are intended to be a general guide to financial management only. Our products are intended to be a general guide to financial management. ISACO Limited and its employees are not agents, brokers, stockbrokers, broker dealers or registered financial advisors. ISACO Limited do not accept any responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in its products. ISACO Limited does not recommend particular stocks or investment funds or any other security or any other investment of any kind. If particular stocks or investment funds are mentioned, they are mentioned only for illustrative and educational purposes. Whilst ISACO Limited comments on the services and advice offered by other companies and individuals, none of the companies or individuals have authorised, sponsored, endorsed or approved this publication. ISACO Limited has not received any remuneration in return for including any company or product featured in our products. You should seek advice from a registered financial professional prior to implementing any investment program or financial plan. ISACO Limited, their agents and employees, do not guarantee any results or investment returns based on the information in this program. Past performance is no indication or guarantee of future results and the value of any investment you make can go down as well as up. The products present information and opinions believed to be reliable, but the accuracy cannot be guaranteed and ISACO Limited is not responsible for any errors or omissions. ISACO Limited accept no liability for such inaccurate or incomplete information.
