Tuesday, October 29, 2013
Halloween is upon us. Of course, whether you’re navigating the dark corridors of a “haunted house” or just dealing with the “creepy” characters coming to your door demanding candy, you’re probably not too fearful of the sights of the season. But as you go through life, you’ll want to avoid some things that really are scary — such as these investment moves:
• Chasing after a “hot” investment — By the time you hear about a supposedly “hot” investment, it may already be cooling off. But even more importantly, it might not have been appropriate for your diversification needs in the first place, especially if you already own similar investments.
• Investing too aggressively — To achieve your long-term goals, such as a comfortable retirement, you will unquestionably need to own a reasonable percentage of growth-oriented investments in your portfolio. However, the greater the potential reward, the greater the risk, so you don’t want to go overboard by investing too aggressively.
• Investing too conservatively — Some types of investments can offer a high degree of preservation of principal. But they carry their own type of risk — the risk of not keeping up with inflation. Consequently, just as it’s not a good idea to invest too aggressively and own only growth-oriented investments, it’s also not wise to invest too conservatively by owning only those vehicles that sacrifice growth potential for principal protection.
• Following the crowd — In many areas of life, you’ll find that it may make sense to go your own way rather than “follow the crowd.” And that’s usually the case with investing, too. It’s quite common for the “crowd” to collectively make an unwise investment decision — so, make your choices based on your individual needs, goals, risk tolerance and time horizon.
• Taking a time out from investing — After sustaining big losses during the financial crisis of 2008, many investors decided to take a “time out” from investing — which meant they may have missed out on the rally that began in 2009 and ultimately resulted in the financial markets achieving record highs. The best investors just keep on investing right through market downturns — and, quite often, their persistence is rewarded.
• Overreacting to the headlines — Too often, people will make long-term changes to their investment strategy in response to short-term news events, such as political turmoil, a bad economic report and even natural disasters. You’ll likely help your cause tomorrow by not overreacting to the headlines today.
• Underreacting to changes in your life — You will experience many changes in your life, such as a new job, new spouse, new children, new home, the “empty nest” and so on. Many of these changes may require changes in your investment strategy. You could jeopardize your progress toward your financial goals by not reviewing this strategy regularly — at least once a year, in consultation with your financial advisor — and making the necessary adjustments in response to your evolving life.
By staying away from “scary” investment moves, you may well find that investing can be a positive, productive experience. And that’s not a frightening thought at all.
-Financial Focus is provided courtesy of Edward Jones, Brian K. Bliesner, Financial Advisor