Investment Rules You Won't Want to Break
Financial SecurityTo achieve financial security throughout life, you don't have to be born rich - although that would help. And you don't have to be a financial genius - although that would help, too. So what do you need? You need to avoid breaking some specific rules of investing. Let's examine a few of them:
Don't ignore asset allocation --You've no doubt heard about the importance of diversification in investing. And it's true that proper diversification is essential to investment success. But just how, exactly, should you diversify?
One proven diversification strategy is called asset allocation. To follow this technique, you need to systematically spread your dollars among an array of investment vehicles -- stocks, bonds, mutual funds and other securities -- to create a portfolio that matches your tolerance for risk, your time horizon andyour overall investment goals. A qualified investment representative can help you determine which mix is appropriate for your individual situation.
Don't chase last year's "hot" stock or mutual fund --By the time you get around to buying a "hot" stock or fund, it already may be cooling off.
Don't try to "time" the market --If you knew when the market's peaks and valleys were going to occur, you'd quickly become rich. But you don't have this knowledge - and neither does anyone else. Instead of trying to time your buy-and-sell decisions with the cycles of the market, you'd be better off by making regular purchases in those investments that you believe have a solid,long-term future.
Don't take your profits too early --And don't wait to cut your losses. These are really two sides of the same coin. Too many peopole are satisfied to sell their stock or mutual fund shares on ay sort of "uptick". Had they stuck with their investment for the long term, they might have ended up doing much better. Conversely, some investors never want to unload a stock, even if it has lost money consistently and its prospects are dim. Instead of waiting for a turnaround, these investors could be using the money for a more promising opportunity.
Don't overlook the need for investment income --As the stock market has exploded over the past few years, many investors have focused only on achieving as much growth of capitol as possible. Sooner or later, you also will need your investments to provide you with income. and when that happens, you might want to consider high-quality bonds, which can help preserve capitol and provide you with a current income stream. Ifyou're in a high tax bracket, you may want to receive your income froom tax-exempt municipal bonds.
Ultimately, there are no short cuts to investment success. That's why you need patience, discipline -- and the willingness to follow some tried-and-true investment rules. Article provided by: Edward D. Jones & Co.
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