The fun is over. The stock market looks set for a prolonged period of average returns. This 4 point plan will help you ultimately prosper.
After Monday's reality check, when the dastardly World Bank said the global economy would shrink by 2.9% this year and only grow 2% next year, stock markets have been relatively calm.
No longer are we seeing massive share price jumps in FTSE 100 stocks like Barclays (LSE: BARC), Vedanta Resources (LSE: VED) and Man Group (LSE: EMG).
No longer are highly indebted beaten-down stocks like Punch Taverns (LSE: PUB), Enterprise Inns (LSE: ETI) and Taylor Wimpey (LSE: TW) soaring to the moon in a single day.
The stock market is now officially a fun-free zone. I mean to say, where's the fun in the Royal Bank of Scotland (LSE: RBS) share price being largely unchanged over the past 5 odds weeks? It's about as funny as Maria Sharapova being knocked out in the second round at Wimbledon.
0% Interest Rates For Quite Some Time
Then there's the US Federal Reserve. They've just left US interest rates on hold at virtually zero percent, saying inflation will remain subdued for some time.
Even more boringly, they said US interest rates will stay at "exceptionally low levels" for an "extended period."
So much for the green shoots of recovery, in the US economy at least. This whole economic recovery thing is going to take some time.
The upshots are relatively simple…
- Consumers are still rebuilding their personal balance sheets. But there is a long way to go. You don't just see your wealth, including your pension, slump by 30% and suddenly pretend all is good again. Saving money takes years.
- UK base interest rates are likely to remain at 0.5%. Putting your money in a savings account will ensure it's safe, but not get you much more than that.
- The stock market is likely to trade in a range for the rest of this year, and likely next year too. Compared to the excitement we've had over the past few months, with the market first plunging into an uncontrollable pit of despair, and then partying like it had inhaled a bucket-full of green shoots, it will seem quite boring.
Yawn.
Boring Is Good
But you know what? Compared to where we've been, with the market and individual share prices whipsawing all over the place, boring is good.
Let me put it another way. Would you be happy if, over the next 10 years, the stock market rose every year, by say 6 or 7%? Throw in some juicy dividends from high yielding stocks like BP (LSE: BP) and Vodafone (LSE: VOD), and you might even get close to double digit returns.
I don't know about you, but annual returns of between 6 and 10% per annum sound pretty attractive to me, especially when you compare it to what you can earn in a savings account.
Boring? Yes. Wealth creating? Definitely.
Nothing is guaranteed of course, apart from the fact the market will definitely not climb in a straight line for the next 10 years.
The Four Point Plan
But that's ok. All you need to do is stay the course. Which brings me to my four points for investing in flat stock markets…
1. Don't get shaken out of the market on the inevitable down days.
2. Keep investing regularly into the market, ideally monthly.
3. Don't chase oversized returns by investing in poor companies.
4. And finally, if you are buying individual stocks, as opposed to investing in an index tracker, don't forget to sell when your shares become fully valued. In a flat stock market, there will always plenty of other cheap companies to invest the proceeds.
It may not bring you excitement today, but should bring you wealth in 10 years time, and beyond.
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> Bruce Jackson does not have an interest in any of the companies mentioned in this article.
