Are you monitoring your accounts every day?
Colorado Springs LIVING WELL Magazine
Are you checking your investment accounts daily? If so, the only thing you will likely accomplish is to drive yourself crazy, especially in today’s whipsaw economy. A better idea is to drop what can only be described as a short-term, day-trader mentality. Then make solid, well-researched decisions for long-term growth, and monitor the results regularly – such as each month or quarter – but NOT on a daily basis.
The problem: Unfortunately, because of instant access to our accounts, too many of us have developed a beat-the-market, day-trader approach to investing. We check our accounts once, twice, three times or more each day. When one asset takes a major dip, we sell, replacing it with the next gotta-buy, guaranteed hot pick of the day touted by the media. In the end, we end up churning our own investments and, too often, keep coming up a day late and a lot of dollars short.
This kind of day-trader thinking rarely works in stable times, and these are not stable times. Too often, in turbulent times, such as we are in today, investors find themselves cheering on one day’s rally, only to go into a frustrated funk on the next day’s decline. We are not in a go-go, up-up-and-away environment, but a tough market economy, marked by rapid spikes and steep declines.
What does work: planning, researching, getting good advice, and allocating assets for the long haul. In other words, design a sound strategy, and then stick to it. Markets rise and markets fall. Fluctuations are normal. One effective course of action is to take a proactive position based on long-term goals, rather than over-reacting to short-term market fluctuations. Here are 10 ways to approach your investing:
1. Invest for the long term. If you are a professional, full-time speculator, great. However, if you are a person with a full-time day job and trying to build solid, long-term wealth, then you need to make reasonable decisions and stick with them. In other words, develop a long-term investment strategy, a blueprint that reflects your objectives. Keep in mind that you may have a series of different objectives: a 15-year plan to build up a college fund for your 3-year-old son; a 30-year plan to create a comfortable retirement; and possibly a 45-year estate plan to leave a lasting legacy to others through your estate plan.
2. Build your knowledge. Maybe you are more interested in the results than in the process, and prefer to defer many decisions to the experts. If so, that is fine. Still, it is helpful to acquire some basic knowledge, if only to enable you to ask the right questions. Ask your advisors about some recommended reading.
3. Identify your risk tolerance. If you are 30 years old and think aggressively, how you allocate your assets may be quite different than if you are 60 and more interested in preservation than growth. Invest in a way that allows you to sleep at night.
4. Leave speculating to the speculators. Some investors spend hours each day poring over market information looking for that significant gem that will enable them to cash in on tomorrow’s next great investment at the exact moment it hits bottom before springing to new heights in value. Most investors are not in a position to do that. Besides, many of these speculators may experience significant losses. (Remember, check your risk tolerance.)
5. Slow-but-sure generally does win the race. Most wealth is built over time, over decades, not overnight. This goes back to long-term objectives. If you develop a solid, balanced investment strategy (one that weighs risks against rewards) when you are 25 or 30, you could possibly have a solid retirement fund when you are 60 or 65. (This is also why it is a good idea to check your accounts monthly or quarterly rather than each morning, noon and evening.) Think long term, and keep your eye on the big picture.
6. Spread your money around. Do not put all your eggs in one basket. Diversify for safety. Rarely will you find a serious advisor who advocates putting all your money into one asset. Besides, balance helps you achieve long-term objectives, especially during uncertain economic times. A well-diversified portfolio can remain fairly steady, even as market conditions fluctuate.
7. Small amounts regularly invested may be just as good as big chunks put aside now and then. In other words, invest in a systematic, scheduled manner. Putting a specific amount aside on a regular basis, regardless of what the market is doing momentarily, is known as dollar-cost-averaging.
8. Do pay attention to your investments. (This is not the same as checking them daily.) You do need to know how a strategy is working out. So, review and adjust your holdings periodically in light of changing economic conditions … but not in knee-jerk response to one day’s market rise or fall.
9. Stay the course. Don’t flinch in the face of downturns without strong evidence that a change of course is advisable. A common mistake some investors make is to hang tough part way through a market correction, then panic and bail out…often at the very time the market is starting to turn upwards again.
Get good advice. As a professional advisor, trained and registered as a securities representative and other investments, I can work with you to help you identify your objectives, analyze your needs and select the right mix of investments for you.
John Ferguson, CLU, CFS, AIF and president of Strategic Financial Partners directly at 719-548-8511
Securities and advisory services are offered through Securian Financial Services, Inc., member FINRA/SIPC.
Copyright 2011 © Custom Communications Insurance Publishing.
Material in this article may not be reprinted without permission.
Financial advisors do not provide tax or legal advice. This information should not be considered as tax or legal advice. Consult your tax and legal advisors about your tax or legal situation.
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