Financial Focus: Avoid these common investment mistakes

Financial Focus: Avoid these common investment mistakes

By Provided by Michael P. Donnelly

Avoid these common

investment mistakes

Editor’s note: The Rock River Times is proud to welcome market strategies from Edward Jones for our readers. Enjoy.

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 that’s 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 don’t 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 Don’t chase performance. We’d 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 Don’t try to “time” the market. If you always knew when to “buy low and sell high,’’ then you’d undoubtedly become rich. But nobody can really predict when the market—or even an individual stock—has reached a peak or valley. Therefore, it makes little sense to base an investment strategy on efforts to time the market. You’ll do far better by “dollar-cost averaging”—that 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, it’s expensive: You’ll rack up a lot of commissions by constantly buying and selling. Second, there’s no evidence that heavy trading can improve your portfolio’s 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 didn’t know the products, and they didn’t appreciate the risks involved. That’s why it’s 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 Don’t go it alone. It’s hard to become an astute investor on your own. That’s why you may want to work with a financial professional—someone 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 investor—but 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 don’t make.

Copyright 1999 by Edward Jones. Michael P. Donnelly is an investment representative for Edward Jones, 2406 Charles St., Suite 1- A, 398-7759.

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