Financial Focus: Avoid these common investment mistakes
By Provided by Michael P. Donnelly
Avoid these common
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Provided by Michael P. Donnelly
Investment Representative for Edward Jones
You may think that the fate of your investments probably hinges on the whims of the market. But thats not strictly the case. By avoiding some common mistakes, you can go a long way toward increasing your chances for long-term success.
Of course, everyone makes investments that, for one reason or another, just dont work out. You may not be able to prevent that type of mistake. But there are plenty of steps you can take to avoid significant errors. Consider these suggestions:
l Dont chase performance. Wed all like to own those hot stocks, the ones that suddenly take off and carry the promise of big gains in little time. Yet, by the time most people turn their attention to a so-called hot stock, it may already be cooling off. Instead of chasing these supposed sizzlers, look for good, solid stocks that fit well into your portfolio.
l Dont try to time the market. If you always knew when to buy low and sell high, then youd undoubtedly become rich. But nobody can really predict when the marketor even an individual stockhas reached a peak or valley. Therefore, it makes little sense to base an investment strategy on efforts to time the market. Youll do far better by dollar-cost averagingthat is, putting in the same amount of money, at regular time intervals, in a diversified mix of investments. Dollar-cost averaging can reduce your overall investment costs and help smooth some of the volatility of the market; however, this technique cannot assure a profit and does not protect against loss in declining markets.
l Avoid jumping in and out of stocks. A lot of people truly enjoy buying and selling stocks. But frequent stock trading has two major drawbacks. First, its expensive: Youll rack up a lot of commissions by constantly buying and selling. Second, theres no evidence that heavy trading can improve your portfolios performance. On the contrary, you may well do better by buying high-quality stocks and holding them for the long term.
l Buy what you know. A few years ago, many investors got caught up in the technology stock craze. They were attracted by rapidly rising stock prices, but, in most cases, they did not fully understand the stocks in which they were investing. They didnt know the products, and they didnt appreciate the risks involved. Thats why its always a good idea to buy what you know. Before investing in a company, make sure you understand its products, its prospects, the outlook for its industry and other key factors.
l Dont go it alone. Its hard to become an astute investor on your own. Thats why you may want to work with a financial professionalsomeone who knows your risk tolerance and time horizon, and who can help you understand how your various investments can work together to help you achieve your objectives. By following these basic guidelines, you may not become a world-renowned investorbut you may avoid a lot of those potholes that trip up so many people en route to their long-term goals. Ultimately, your investment success will be closely connected to the number of mistakes you dont make.
Copyright 1999 by Edward Jones. Michael P. Donnelly is an investment representative for Edward Jones, 2406 Charles St., Suite 1- A, 398-7759.