Almost any investor worth his salt will know that it is imperative to keep track of the investment climate to succeed. This is done by monitoring a variety of indicators (not just one or two) that can help you make smart decisions and as to whether you should take a buying or selling position.
Here are three indicators that should help you decide what investment choices to make:
#1: Investor Returns
Instead of looking at your mutual fund’s trailing one, three, five or 10 years returns (the published returns), another approach would be to monitor ‘investor returns’ that measures an average investor’s return for any fund. These calculations will also tell an investor how much they could lose or gain based on when they decide to buy or sell. In most cases, balanced funds are considered to be much more profitable than volatile funds.
#2: Sentiment Surveys
Another important number to look for is the weekly release of ‘sentiment surveys’ by the American Association of Individual Investors which tell you whether investors are bearish, bullish or neutral over the next six months. Often, the approach that investors take causes the market to head in the opposite direction.
#3: The VIX
Also known as the Chicago Board Options Exchange Volatility Index (VIX), these numbers are considered to be a ‘fear gauge’ that describes complacent or fearful investors are at any given time. The index uses options prices to measure expected volatility for 30 days in the S&P500. Since these numbers are available on the Chicago Board Options Exchange website, one can easily get access to these numbers so that they know what’s happening in the market.