The dog days of summer are upon us, and as we highlighted earlier, the summer months have generally been unkind to investors with low trading volumes and occasional spikes in volatility making for lackluster returns.
All in all, summer can be a real drag for investors, in every sense of the word. For starters, subdued trading activity can be frustrating for those who always have an urge to do something for their portfolios; this type of environment can in turn prompt erratic decision making, which more often that not will quite literally drag down your overall returns in the long run.
Our advice for dealing with the summer slump is simple: be productive, not reactive.
Embrace the Summer Slump
Low trading volumes and occasional spikes in volatility are a dangerous combination because they can lure even seasoned investors into making erratic, emotionally induced decisions. To avoid this sort of temptation, we highlight three ways to focus your energy and channel your urge to do something productive rather than reactive:
- Beef Up Your Income: You can utilize options strategies designed to help you get more income out of your dividend-paying stocks. One example that we’ve covered previously is the covered call strategy, which is often utilized by conservative income investors.
- Find the Next Big Trend: Take advantage of the summer slump by rolling up your sleeves and diving into some good old-fashioned research. Identifying long-term trends and then finding the most relevant stocks takes time and should not be rushed.
- Get Creative: There’s a plethora of money management decisions you can make to improve your overall returns that have nothing to do with buying or selling securities. Get creative with how to get the most out of your investments; our guide Free Lunch on Wall Street is a great starting point.
The Bottom Line
Avoid the temptation of buying or selling just for the sake of feeling like you’re doing something useful for your portfolio. Remember that abandoning exposure is costly and if you must tweak your portfolio, consider scaling in or out of positions gradually rather than pulling the trigger on a big order all at once.
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