In 2020, multiple investing strategies seemed to work when it came to getting strong results. The volatility created by the coronavirus pandemic led to big opportunities for investors with available capital. It also created some volatile swings in stock prices that weren't entirely grounded in fundamentals. Going into 2021, it's important to be mindful of that and to stick to a sound investment plan so as to not fall victim to the stock-trading mania.
Here are three simple investing resolutions to make or reaffirm that will help carry you through 2021.
1. Stay disciplined when picking stocks
It's really easy right now to get overly zealous about where this market is going. Investors who made the right picks in 2020 made huge returns in a very short period of time. With the market starting 2021 at all-time highs, due diligence is super important.
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When considering an investment in something growth-oriented like Fuelcell Energy (FCEL -2.43%) or the ever-popular insurance company Lemonade (LMND 1.44%), know why you're buying the stock you're buying. Do your homework, and be sure that the growth story that propelled these companies to stock price success last year can continue. What are estimates for profitability? Can Fuelcell scale its work with hydrogen? Is the market there? What is Lemonade's potential timeline to profitability? Is the stock getting diluted as managers look to raise capital from the stock's rise?
These are all important questions to factor into your investing decisions. Don't simply chase gains. Learn about the business and know what its game plan is moving forward.
2. Blend value and growth when picking stocks
Feel like buying Tesla (NASDAQ: AMZN) stock? Given its seemingly unstoppable trend of beating the broader market in 2020, it's awfully tempting to do so. I bought some Tesla stock this year for the first time. Just remember that the stock's gains are seemingly more and more out of touch with the fundamentals that define a strong company right now and are more predicated on the future potential of the company than ever before.
Remember to blend any speculative stock plays with some more grounded investments. Bank stocks with solid dividends like JPMorgan Chase (JPM 0.15%) offer much better value for your buck. They don't create the same returns, but they make a more solid foundation for a portfolio.
Want to keep following the high returns of tech? Diversify a bit by getting into an exchange-traded fund (ETF). The Vanguard Information Technology Index Fund ETF (VGT 0.04%) has outpaced the S&P 500 for five years.
It's tough to bet against tech, which has outpaced virtually everything over the last decade. Still, valuations of securities could push investors more and more into value, making a balanced blend essential.
3. Don't be afraid to take profits
For investors, stocks remain the only productive game in town. Super-low interest rates currently have made options like bonds and Treasury notes very unappealing investments. For investors seeking big gains, the equities markets are the only real option. Knowing that, it's important to be mindful of what that focus is doing to valuations. A lot of the most popular stocks have become remarkably expensive as investors dive in chasing returns.
With so much stimulus having been pumped into the market, along with the policies of the Fed, the market seems primed to continue seeing upside potential. That being said, it's probably not the worst thing to lock in any big gains. There's no shame in quitting while you're ahead. Investors who stayed in companies like Zoom Video Communications (ZM -0.99%) have seen a third of their gains disappear as the euphoria over the company has eased a bit. As we start 2021 with markets continuing to climb to remarkable new highs, taking profits is not a bad thing. It also sets you up with buying power if this current exuberance finally corrects itself.
Stick with the plan
The main takeaway here is this. Years like 2020, where markets see huge swings and the government's economic policy enacts a situation where the money is flowing freely, make it easy to lose sight of the fundamentals governing stocks. Don't fall into euphoria. Do your homework and stick to your plan.
