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Cents and Sensibility Guy Steele |
Summertime is as good
as any time to investSUMMER will soon be here, time for family trips and long weekends. But when it comes to investing, you don't necessarily want to take a summer vacation. Instead of taking a "time out" from investing until the fall, keep your eyes open for good investments now; and during the rest of the year, as well.
If you find a high-quality stock -- one that represents a company with good products, strong management and consistently favorable earnings -- and you've determined that this stock fits in well with your diversified portfolio, there's no reason to delay your purchase until a supposedly more "favorable" season. Eventually, the stock will succeed, or fail, on its own merits, not on the time of year.
In short, don't base your financial strategies on trends that may or may not have occurred in the past. If you're going to follow the road to investment success, you can't always be looking in your rear-view minor.
If it isn't a good idea to take a time out from investing during a given season, how about the other aspects of seasonal investing? Specifically, should you look for stocks that may do better at one time of the year than another? For example, during the holiday season, you may expect the stocks of big retailers to do well. Should you jump to invest in these stocks and "ride the wave" until the season ends? Again, the principle of "seasonality" is a poor one on which to base investment decisions.
Let's look at the example of retailing stocks. It's probably safe to say that most big retailers post bigger sales during the holidays than during other times of the year. And sometimes, bigger sales do translate into higher stock prices, but not always. You'll be making a mistake if you assume that big retailers' stock prices invariably move up during the holiday season. But even more importantly, a short-term bump in a stock's price does not guarantee long-term success for that stock. Retailer XYZ may see its stock price rise dramatically during the October-December time period. But what about January? And the rest of the year? Ultimately, the long-term prospects for XYZ will depend on a variety of variables: How well the company is run, the appeal of its products, the strength of its competition, the level of disposable income among consumers, etc.
As an investor, these are the types of factors on which you need to base your investment choices. Remember, you are not just investing to do well two or three months of the year; you're investing to improve your prospects of achieving your long-term goals, such as a comfortable retirement. And that's why you need to look beyond the calendar to seek out high-quality investments that will show their value over many years to come.
By seeking high-quality investments, and by striving to keep your portfolio diversified, you will find that you can make good investment decisions anytime, in winter, spring, summer and fall.
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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