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3 Investing Strategies to Navigate the Stock Market in 2021

By Katie Brockman – Nov 6, 2021 at 5:45AM

Key Points

  • It's possible to make a lot of money in the stock market, but you'll need the right strategy.
  • Choosing the right investments is critical, and your strategy could make or break your portfolio.
  • While trendy investments may be tempting, they can be riskier than they seem.

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These tactics can help you strengthen your portfolio as we head into the new year.

Whether you're just getting started in the stock market or have been investing for decades, it never hurts to refresh your strategy. As we near the end of 2021, it's a perfect opportunity to double-check that your investments are on track and ready for the new year.

While each investor is unique and may have different preferences when it comes to their portfolio, there are a few investing strategies that are universal. These three guidelines can make it easier to navigate the stock market in 2021 and beyond.

Person sitting at a desk looking at a computer and smiling

Image source: Getty Images.

1. Maintain a long-term outlook

It's easy to get caught up in the stock market's day-to-day movements, especially during periods of volatility. While 2021 has been an incredible year for investors, many experts warn that the market is overvalued and due for a correction.

Market downturns can be intimidating, and it may be tempting to sell your stocks or stop investing altogether if the market takes a turn for the worse. However, these tactics can be risky, and there's a chance you could lose more than you gain if you sell at the wrong moment.

To give your investments the best chance at surviving volatility, the key is to maintain a long-term outlook. The stock market has a long history of surviving crashes and corrections, regardless of their severity. By staying invested for the long term, there's a good chance your stocks will be able to bounce back eventually if the market dips.

2. Focus on quality investments

Whether you're investing in individual stocks, exchange-traded funds (ETFs), mutual funds, or a variety of different investments, quality is key. While there's no one-size-fits-all approach when it comes to choosing the right investments for you, there are a few factors to consider when building a strong portfolio.

If you're buying individual stocks, do as much research as you can on each company. The best stocks are from the organizations with the strongest underlying business fundamentals. The more you know about the companies you're buying, the easier it will be to choose quality stocks that will perform well over time.

If you're investing in funds such as ETFs, double-check that your investments align with your risk tolerance and that your portfolio is properly diversified. You may be investing in hundreds or even thousands of stocks through your funds, but if they're all high-risk stocks or from the same industry, you could be taking on more risk than you think.

3. Don't fall for the hype

This past year has seen the rise of meme stocks, and these high-risk, high-reward investments can be tempting. Especially as investments such as cryptocurrency Shiba Inu earn explosive returns, it can be difficult to ignore the hype.

However, when an investment has gained a lot of media attention, it doesn't necessarily mean it's a smart buy. Before you invest anywhere, be sure to examine an investment's fundamentals and try to determine why it's growing the way that it is.

Shiba Inu, for example, has earned astronomical returns due to its loyal following of retail investors. These investors buy the cryptocurrency in droves, thus increasing its price.

After Shiba Inu's price peaks, many of these investors will sell to make a quick profit, and the price will plummet. In other words, Shiba Inu's returns have very little to do with its strength as an investment, and it's possible to lose a lot of money by buying or selling at the wrong time.

It pays to be critical when choosing new investments for your portfolio, so try not to let hype get in the way of your decisions. By focusing on long-term investments and doing as much research as you can, you'll be well on your way to generating wealth in the stock market.

Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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