Financial Focus: Scary Investment Moves Can Lead to Frightful Results
Scary Investment Moves Can Lead to Frightful Results
As we approach Halloween, you'll spot many ghouls, ghosts and graves, which you probably will find more amusing than frightening. However, whether it's Halloween or not, you can encounter things that truly might threaten your future well-being - such as scary investment moves.
Here are a few of these "terrifying tactics" you'll want to avoid:
* Investing too conservatively - When most people think of making investment mistakes, they're probably worried about investing too aggressively. And, of course, you don't want to take unnecessary risks. But what you might not realize is that "playing it safe" can be just as dangerous to your long-term goals. If you consistently put most of your investment dollars into fixed-rate vehicles, such as Certificates of Deposit (CDs) and Treasury bills, you might not even earn enough to stay ahead of inflation, much less achieve the growth you need to pay for a retirement that could last two or three decades. Consequently, you will need some exposure to growth-oriented vehicles, such as stocks. While it's true that stock prices will fluctuate, and you do risk losing some or your entire principal, you can lessen this risk by purchasing quality stocks and holding them for the long term.
* Timing the market-Too many people jump in the market when they think it's going up and get out when they feel it's going down. But it's impossible for anyone to really predict market highs and lows - and if you base your investment decisions on this type of "market timing," you could end up hurting your progress toward your financial objectives. For example, if you stop investing when you think a slump is coming, but the market quickly turns around, you'll miss the opening stages of a rally, when the biggest gains are often recorded.
* Over-reacting to bad news - Wars, corporate scandals and natural disasters, among other occurrences, often send investors scurrying to the sidelines, convinced that the bad news will lead to a severe market decline. Typically, though, any decline following a significant, negatively perceived event, is short-lived, and, in many cases, the market recoups its losses and moves to higher levels within a matter of months.
* Chasing "hot" stocks - You can get stock "tips" from everyone - friends, neighbors, magazines, the Internet, talking heads on television and so on. Some of these tips come from well-informed sources, while others do not, but they all have one thing in common - they're essentially worthless to you. For one thing, by the time you get a tip for a "hot" stock, it may already be cooling down. But more importantly, the stock may not be appropriate for your individual situation. If, for instance, you buy shares of a company that is very similar to other companies you already own, and an economic downturn affects the industry to which those companies belong, you will hurt, rather than help, your portfolio by purchasing the so-called hot stock. You're much better off by ignoring these tips and focusing on building a portfolio that is suitable for your risk tolerance, time horizon and long-term goals.
By avoiding these "scary" investment moves, you can help yourself achieve some results that aren't too frightful - in fact, they may eventually be sweeter than the best Halloween candy.
This article was written by Edward Jones on behalf of your Edward Jones financial advisor.