Markets ebb and flow over the course of the year, and as the seasons shift, consumer and corporate behavior changes. While some investors like to camp on their portfolios for months or years at a time, a different investment strategy entails tracking these patterns and altering investments to harness the different types of growth.
The winter holidays, in particular, can be a turbulent time for investing. If this is your first holiday season as an investor, here’s a bit of what you can expect over the course of the next couple months:
There Are More Half-days and Full Days off
Even the stock market takes a break during the holiday season. During the fall and early winter, there are an incredible number of holidays when markets close entirely, meaning that no one is on the trading floor and that any trades you make won’t go through until the next day of operation — same as weekends. Thanksgiving Day, Christmas Day and New Year’s Day are full days off, and both the day after Thanksgiving and the day before Christmas are considered partial holidays where markets close early. If you are aggressive in your day trades, it might be wise to mark these important dates on your calendar, so you aren’t surprised when your trades take a day (or two) to process.
Trading Tends to Slow Down
A large number of people take more vacation days over the holiday season, in the hopes of spending more time with friends and family. As a result, there are fewer people at work almost everywhere — including on the trading floor. For almost the entire duration of the holiday season, there are fewer people engaging with the market, either in investment firms or at their home computers, which causes the volume of trades to decrease dramatically during this time of year. Low volume results in a decrease in liquidity. This means it could be harder to get out from under certain investments, so you should choose your investment moves wisely during the holidays.
Stocks Are Less Likely to Move
Another effect of the holiday season is the low volatility of stocks. Volatility reflects how much an asset’s value fluctuates over a certain period; if there is low volatility, it means that asset’s prices tend to be rather steady. While there are places in a portfolio for non-volatile assets, volatility is generally what investors want to see because stock movement — in one way or the other — is what helps to generate wealth. In general, you should expect your earning potential to be lower in the holiday season, but you should continue using investment tracking tools to ensure that your earnings are still going up.
Markets Move Erratically
The holiday season always falls at the end of the year, which is a strange time for the economy. Some businesses are at their most active, while other businesses are all but shut down. Thus, it isn’t uncommon for markets to be less predictable than usual. Erratic markets are common over the course of the holidays, but a bit of unexpected movement shouldn’t shake up your investing plan. Here are a few mistakes to avoid in erratic holiday markets:
- Don’t invest based on emotion. Seeing certain stocks rise and fall can be equal parts scary and exciting, but you shouldn’t let your emotions overtake your plan.
- Don’t overvalue daily reports. When markets are erratic, the daily report could say almost anything. Small ups and downs shouldn’t cause you any concern.
- Don’t look back. It is possible that your portfolio will dip in value over the holiday season, but that doesn’t give you license to focus on the day you had the highest value. You should focus on looking to the future, not back and not necessarily at the present.
How to Plan for Safe Investing
Every investor has their own strategy, so not every investor reacts to the conditions of low volume, low volatility in the same manner. Still, since you are a beginner, you might want some guidance on how to keep your invested money as safe as possible during this time. Some tips include:
- Be conservative. You probably want to position yourself in safe investments for most of the holiday season, so you don’t need to worry about the sometimes-erratic movement of the market.
- Trade less. You should probably ease up on your trading for most of the season and hunker down with your current portfolio. You should be extra picky about the trades you do go through with.
Every holiday season is different — and the 2020 holiday season is likely to be especially strange. Still, there are ways to survive the holidays with a healthy portfolio, even when you are a beginner investor.