Stock Market Trading

The old-school theory of buy and hold no longer applies to today's stock and bond markets. In our current economic environment, actively managing your portfolio is incredibly important. This doesn't mean that you need to continuously trade in your account, but it does mean that you need to keep an eye on your investments.

Theories of Stock Market Trading

The buy and hold theory of investing is called passive investing, while continuously re-allocating your assets is called active management. The latter is the much more efficient method of portfolio investing. This holds true for any type of investment class. Whether it's stocks, bonds, or mutual funds, active management is key to keeping your portfolio performing in line with your expectations.

Many technology investors learned this valuable lesson after the bubble burst of 2001. Actively managing your account includes placing important stop losses to manage downside risk and taking profits as appropriate. Managing your portfolio can be simple if you take the appropriate precautionary steps. Reading a monthly newsletter or researching the market on a periodic basis can help you stay on top of changing economic landscapes. Keep in mind that active management does not mean active trading--it simply means that you're keeping on top of important changes that can affect your investments.

For example, if you invest in mutual funds, it's important that you research company changes. If a fund's long-term portfolio manager has recently left the firm, or the annual fees have been increased, you may want to consider investing in a new fund. There isn't a shortage of quality investments, so don't be afraid to make re-arrangements in your account. Keep in mind that trading will normally generate new fees, but the benefits you receive from making a good change will far outweigh any additional fees.