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Markets

Flat trading is not bad, stay invested

Sep 24, 2015 08:47 PM EDT

Investors park their money in stocks and wait for them to rise and then book profits by offloading them at a higher price. What happens if the stocks remain trading flat without much ups or downs. Some years like 2013 stocks skyrocket and sometimes they erode previous gains like what happened in August crash this year. Latest data shows that the US equities over the decades offered 6.6 percent annual return on stocks as against 3.5 percent from bonds. The 6.6 percent return can outpace inflation. Market analysts advise investors that stay invested till the stocks reach a higher price than your buying quote. A flat year is not a bad year. In fact, investors don't lose their money in flat trading or directionless market. Above all, an investor would also get dividends for holding stocks. 

For those who are entering the market, down year is ideal to make an entry as stocks turned attractive at lower prices. Dow Jones Industrial Average broke its previous record in negative year-to-date (YTD) returns. Dow Jones index turned negative YTD for 21st time beating 20 times registered in 1934 and 1994, as said Mitch Tuchman, an investment advisor. "The price investors pay is for emotional one," he said. 

According to Wharton's Jeremy Siegel, $1 invested in 1802 would be worth $802,236. If $1 invested in bonds, then it'll be worth $1,552. Huge difference over a period of time. Some years they go higher, some years they go negative and some years just flat nothing else. Investors need to be patient during flat trading period. If they stay invested, they'll be in a position to book profits as soon as the markets move up.

China economy has a greater influence on world stocks as the news about its slowdown in the economy, discouraging numbers from the manufacturing industry and Yuan devaluation has resulted in August crash to a greater extent. China stocks fell over 40 percent this year and now trading flat. 

Investors are very uncertain about the future direction of the market. The market is not in a position to take fresh decisions as institutions, banks and FIIs were in wait and watch mode until last week as US Fed was about to take a decision on interest rates. But the US Fed didn't take any decision and postponed it to next October meeting. The market lacks strong triggers to rebound. Hence, it's likely to be flat for some more time.

Investment advisors advise young and those who are entering the market can take the position at the current prices. Moreover, the down year is much more attractive if the market goes further down. This will make stocks very attractive for taking fresh positions. 

The US stocks registered marginal losses in four sessions out of the last five sessions. There's no news to drive up or down, say traders. Volumes were also less than the average. Since last Wednesday, Dow Jones fell just three percent only. 

Investors can't wait for years to reach out to uptrend one. Retirement people want to invest immediately and not in a position to time the market. Most of the times, investors just sit on stocks when they're riding high missing the profit booking opportunity. When stocks were tumbling, they just express their concern and tend to offload them when the stock price is at its worst.  

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