A Winning Plan for Any Market

Whatever the market is doing, by following these three steps you can still make money over the long haul.

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With all the mad moves markets make, it's no wonder that so many people are confused about where shares will go next. But rather than spending a lot of time and effort trying to guess the market's next zig, you're far better off following a plan that will work no matter where shares go in the coming weeks and months.

No timing beats bad timing

In 2007-8, the extreme share market moves left many investors completely shellshocked. Even though people thought they understood the risks involved with investing in shares, the reality of the plunge that lopped off more than half of the S&P/ASX 200's value between late 2007 and early 2009 scared a lot of investors completely out of the market.

Since then, the market cannoned wildly between awe-inspiring rallies and stomach-churning drops, many of which brought back memories of the worst days of the global financial crisis (GFC).

On the whole, though, shares earned back a big chunk of what they lost. Yet unfortunately, it's only after such huge gains have already been made that many investors start to feel comfortable getting back into the share market again.

Although shares may yet continue to rise and rise and rise, there are no guarantees — and all too often in the past, the general public has piled back into an investment at exactly the wrong time.

Stop guessing and invest!

The worst thing about the dilemma that those who are still on the sidelines face is that they've gotten themselves sidetracked from a winning strategy. Investing should be a lifelong endeavour, its success measured in decades, not just a few years. Still, many people were burnt during the GFC, leaving them to conclude that long-term investing is only for suckers.

But if you followed these three steps, you still made money over the long haul — even in one of the most volatile and gut-wrenching period for shares in generations.

1. Keep investing, no matter what the market does.

When shares fall, your gut tells you to stop putting more money into the market. After all, throwing good money after bad feels like exactly the wrong move.

But the experience of early 2009 should show you just how wrong your gut is when it comes to investing at market bottoms. For instance, Flight Centre (ASX: FLT) shares languished down at less than $4 and many people thought they were a company in a state of permanent decline. Yet those who not only held on but also added new money to pick up shares on the cheap benefited the most from the huge rebounds that followed. Even less aggressive investors who simply bought index tracking funds reaped the rewards of buying share at the lows.

2. Stick with a solid core.

You don't have to be a daredevil to be a winning share investor. Even though the recovery of Pacific Brands (ASX: PBG) has turned the owner of Bonds underwear shares into a stellar performer since early 2009 (even after their recent decline), lower-risk shares didn't fall so far in the first place.

For instance, it's been a very long time since anyone could say that Coca-Cola Amatil (ASX: CCL) was a high-growth powerhouse share. In their maturity, some would say that their best days are behind them, and they're unlikely to post the triple-digit gains that smaller shares often sport.

Yet Coca Colca Amatil were among the few to hold their ground in 2008. And even though they didn't rise as far as the big rebounders did in 2009, their aggregate return over those two years would make many investors jealous. Having a core of solid shares won't always protect you from losses, but they will make the market's big bumps a little less scary.

3. Add some spice to your life.

Another thing that a solid core does is give you latitude to take some risk with a portion of your portfolio. One idea is to take 10% or so of your money and use it for risky individual share ideas that you wouldn't want to make a bigger bet on.

What those ideas are depends a lot on your own inclination and expertise. Those who believe that the commodity boom is set to run and run might put money into smaller iron ore, gold or copper shares, which has act as a leverage play on the price of the underlying commodity.

Stay smart

No matter what you choose to invest in, having a long-term strategy is essential to avoid costly trading mistakes. Having the discipline to keep investing even during rocky periods can mean the difference between making money and treading water.

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