|
Cents and Sensibility Guy Steele |
3 must-do steps to work
toward successful investingYou've probably seen plenty of magazines featuring pictures of affluent-looking people who have "made it big" in investing. While these photos may grab our attention, the articles can be more illuminating. If they're honest, they will usually reveal that those investors who supposedly "hit the jackpot" actually earned their prosperity by diligently following a few simple steps over many years.
And you, too, can make the same moves. What are these secrets to success? Here are three to consider:
» Create a plan. If you don't have an investment plan, you are liable to make all kinds of costly mistakes. For example, you may be tempted to chase after "hot" stocks only to discover that, by the time you buy them, they are already cooling off.
Or, you may randomly invest in a stock here, a bond there, a CD next month, a Treasury bill next year, and so on. But you won't increase your chances of success just by adding more investments.
That's why you need to create an investment plan that's based on your risk tolerance, your specific goals and your time horizon. By putting together a diversified array of high-quality stocks, bonds and other vehicles, you may be able to make steady progress toward your objectives.
You can draw up this type of plan by yourself, of course, but you may find it easier -- and more productive -- to work with a financial professional who knows your situation and who can make objective recommendations.
» Keep investment performance in perspective. Many people make one of two mistakes when it comes to tracking their investments. They either forget about what they own, or they zealously follow every single price movement, large or small.
Both of these moves can be troublesome.
If you pay absolutely no attention to what you've invested in, you could someday find that your investments are no longer suitable for your needs.
On the other hand, if you are constantly fretting about price movements, you'll be tempted to make hasty "buy" and "sell" decisions that ultimately may work against you.
Instead of following either of these paths, look for a middle ground. Be aware of how your investments are performing, but always keep this performance in perspective. A stock could have a bad month, or even a bad year, and still have a promising future.
Conversely, another stock may be "hot" at the moment but face daunting challenges for future success.
The bottom line? Review your portfolio regularly -- at least once a year. Evaluate how your investments have done in the recent past and what they may do in the coming months and years. Most important of all, try to determine if your holdings are still doing what you want them to do.
Are they growing at the pace you need? If they're designed to provide income, are you getting the amount you want? Again, when you're reviewing your portfolio, you can benefit from working with a financial professional.
>> Invest for the long term. It sounds easy, but it's not. To really invest for the long term, you need patience, perseverance and the ability to focus on events that won't occur for several decade.
That's not to say you won't have short-term goals, such as a down payment for a house, a family vacation, etc.
And there are some investments that are well-suited for these needs.
Overall, though, you will probably find that most of your portfolio will be devoted to achieving your long-term objectives -- a comfortable retirement, college for your kids, etc. So, you must build -- and maintain -- the mix of investments that have the "staying power" you will need.
There you have it, three moves you'll need to make to be a successful investor. By following these suggestions, you may never land on a magazine cover, but you should be pleased with the results.
See the Columnists section for some past articles.
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