Okay, so it’s not really Mom’s advice, but it’s still good advice. It’s all too easy to run with the bulls or hibernate with the bears and forget what your investing objectives were in the first place. Just as Mom had rules you knew you had to follow, so are there rules for investing that you may want to heed.
Have a Plan. You can’t begin to choose investments if you don’t know what you’re investing for. Before you do anything else, you may want to make a list of all your financial objectives. Some of your savings goals may be short term — putting a down payment on a home, for instance. Others may be intermediate goals, such as saving for your child’s education. But, no matter what your other goals are, saving for a retirement that may be several years or even decades in the future should be part of your strategy. Remember to take all your objectives into account whenever you make investment decisions.
Use Tools. The cornerstone of any investment plan is diversification. Diversification means spreading your investments among a variety of asset classes and across many different economic sectors. This may help cushion your portfolio against major losses if one type of investment or area of the economy experiences a downturn.
Know Thyself. Determining your risk tolerance — your willingness to accept investment losses in exchange for the chance to earn potentially higher returns — is an important part of deciding how you want to invest your money. Investors who don’t feel they can tolerate much risk usually put a significant portion of their money in lower risk investments, such as bond and money market funds, while investors with a higher tolerance for market ups and downs may put more of their money into stock investments. Choosing an investment mix that reflects your ability to accept risk and offers returns that outpace inflation is an important investing rule.
Buy and Sell Wisely. Think about your strategy before you buy an investment. Be certain the investment you’re considering fits your current asset allocation and can help you achieve your goals. Review investment performance periodically. And don’t hesitate to sell an investment that doesn’t perform as you expected or no longer meets your objectives.
Understand What You’re Getting. Make sure you’re clear about the fund manager’s strategy for making money. If you don’t understand how a fund works, you won’t be able to judge its performance or determine whether its investing strategy fits your criteria.
Close Window