Cents and Sensibility
Bad investment advice is much scarier than Halloween
Oct. 31 is Halloween. And, in all likelihood, you probably don't mind seeing some of the "terrifying" costumes worn by children. However, outside the realm of trick or trick, you'll want to avoid something truly frightening: bad investment moves.
Here are a few ideas for doing just that:
» Don't chase "hot" investments. In the past few years, investing in real estate has been "hot." Low interest rates have led an enormous number of people to purchase property not as a place to live, but as an investment vehicle. Their eagerness to become temporary landlords has been fueled by the belief that "housing prices always go up." But this just isn't true: housing prices have stagnated and fallen in the past, and they may well do so again in the near future. If that happens, many people will be paying mortgages on investment property with uncertain prospects, all-too-certain property taxes, leaky roofs and furnaces that need repair. So, whether it's investing in real estate or any other so-called "hot" market, don't rush to join the crowd -- it may soon be full of people with regrets.
» Don't always accept "conventional wisdom." When there's turmoil in the world, inflation is heating up and the financial markets are struggling, what should you invest in? Some would say gold. But on an inflation-adjusted basis, gold trades at roughly the same price as it did in 1833. By contrast, from 1926 through 2004, large-company stocks recorded an average annual return of more than 10 percent, compared with the average annual inflation rate of around 3 percent for that same period, according to Ibbotson Associates, an investment research firm. In other words, it doesn't always pay to "go for the gold" -- or for any other "nugget" of conventional investment wisdom, either.
» Don't fall in love with your investments. Generally, it's a good idea to buy high-quality investments and hold them for the long term -- but "long term" doesn't necessarily mean "forever." For example, if you have developed significant concerns about a stock's future, or if the stock no longer meets your needs, get rid of it. You can almost certainly find better uses for your investment dollars.
» Don't take a "time out" from investing. You can always find plenty of reasons for not investing: High oil prices, war, corporate scandals and more. But these problems, or ones even worse, have always been around -- and the most successful investors have been the ones who kept on investing, through good times and bad.
» Don't forget your "emergency fund." If you haven't set aside six months to a year's worth of living expenses in a liquid account, such as a cash account or cash alternative, you risk jeopardizing your progress toward your long-term financial goals. Without this emergency fund, you may be forced to cash out some of your investments when you have to pay for a new furnace, a major car repair or some other large, unexpected cost. Over time, all these "raids" into your investments can really work against you.
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Guy Steele is a financial planner and head of the Pali Palms office of Edward Jones. Send planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, Hawaii, 96734,
or call 254-0688