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Is there a magic formula for achieving
investment success? Not really - though you
wouldn't know it by reading all the
advertisements touting "surefire winners." The
truth is that there are few valid guarantees in
the investment world.
However, once you learn to ignore all the
exaggerated claims you might encounter, you can
actually do quite a lot to become a more
successful investor. Here are five things all
good investors should know:
- Patience is a big asset. Stock prices
will always go up and down. The best
investors overlook these short-term price
swings and don't head to the investment
"sidelines" when times are tough. Of course,
this is easier said than done - especially
when the political and economic news of the
day is bad and the financial markets seem
rattled. Yet, history is full of wars,
crises and scandals and not one of them has
permanently harmed the outlook for
investments. In fact, after the initial
shock of the event has worn off, financial
markets have often recovered lost ground in
a matter of months - and then gone on to new
heights. Of course, past performance is not
a guarantee of any future results.
- All investments carry risk. Everyone
knows that stocks can lose value. But too
many people don't realize that all
investments carry some type of risk. For
example, bonds and Certificates of Deposit
(CDs) may offer substantial protection of
principal, so they might be considered
"safe." And yet, these same vehicles may
provide returns that fail to keep up with
inflation, which means they carry purchasing
power risk. It's not the same risk as that
incurred by stocks, but it's a risk
nonetheless - and it's something to be aware
of if you are counting on your investments
to provide you with some of your cash flow.
- Expenses can reduce returns. Obviously,
you would like your investments to provide
you with good returns. But don't focus on
returns to the exclusion of all other
factors - such as investment expenses. The
costs of investing can significantly erode
your investment returns. So, for instance,
if you are constantly buying and selling
stocks in hopes of turning quick profits,
you will likely run up against taxes and
other costs that can turn potentially big
gains into something else. You are likely to
do much better by purchasing quality
investments and holding them for the long
term, or until your needs change.
- Knowledge is power. Some people aren't
really sure what they are investing in - and
that can lead to a variety of problems. For
example, they might invest in almost exactly
the same vehicles inside and outside their
401(k) plan, which could lead to an
over-concentration of assets in a particular
area - leaving them vulnerable to a downturn
affecting that one asset class. The more you
know about your investments, the less likely
you are to face unpleasant surprises down
the road.
- Professional expertise is valuable. Work
with an investment professional who knows
your needs and who will work with you
one-on-one to create a personalized
strategy.
So, there you have it - five things every
investor should know. Put this knowledge to work
in helping you achieve your goals. |
