Whether you have young children or not, you’re probably well aware that Halloween is almost here. However, despite the plethora of skeletons and ghosts you might see floating around this week, you probably don’t have much to fear (except, possibly, running out of candy). But in real life, some things genuinely are frightening — such as “scary” investment moves.
Of course, investing, by its very nature, is not a
risk-free endeavor. Ideally, though, these risks are also accompanied by the
possibility of reward. Nonetheless, some investment moves carry very little in
the way of “upside” potential and should be avoided. Here are a few to
consider:
• Not investing — The
scariest investment move you can make is to not invest at all — because if you
don’t invest, you are highly unlikely to achieve a comfortable retirement or
meet any other important financial goals. In a recent survey conducted by the
National Council on Aging and other groups, 45 percent of the respondents who
were 60 or older said they wished they had saved more money, and almost
one-third said they wished they had made better investments. So make investing
a priority — and choose some investments that have the potential to provide you
with the growth you’ll need to meet your objectives.
• Overreacting to “scary” headlines — The financial markets like stability, not uncertainty. So
the next time you see some news about domestic political squabbles or
unsettling geopolitical events, such as conflicts in foreign lands, don’t be
surprised if you see a drop, perhaps a sizable one, in the Dow Jones Industrial
Average and other market indices. But these declines are usually short-lived.
Of course, the markets do not exist in isolation — they can and will be
affected by what’s happening in the world. Yet, over the longer term, market
movements are mostly governed by mundane, non-headline-grabbing factors, such
as corporate earnings, interest rate movements, personal income levels, and so
on. Here’s the point: Don’t overreact to those scary headlines, or even to
short-term market drops. Instead, focus on the fundamentals driving your
investments — and maintain a long-term perspective.
• Chasing hot investments— You can receive tips on “hot” investments
from multiple sources: Television, the Internet, your friends, your relatives —
the list goes on and on. But by the time you get to these investments, they may
already have cooled off — and, in any case, may not be appropriate for
your needs. Stick with investments that offer good prospects and are suitable
for your risk tolerance.
• Failing to diversify
— When it comes to investing, “too much of a good thing” is a relevant term. If
your portfolio is dominated by one type of asset class, such as aggressive growth
stocks, and we experience a downturn that is particularly hard on those stocks,
you could face sizable losses. But if you spread your investment dollars among
growth stocks, international stocks, bonds, government securities and
certificates of deposit (CDs), you can lessen the impact of a market drop. Keep
in mind, though, that while diversification can reduce the effects of
volatility, it can’t guarantee a profit or prevent losses.
Halloween is over quickly. But scary investment moves can
have a lasting effect — so stay away from them.
This article was written by Edward Jones for
use by your local Edward Jones Financial Advisor.
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