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‘Scary’ Investment Moves to Avoid

Posted October 24, 2012 in Advice Column, Pleasant Hill

A presidential election is upon us, but if you have young children, you know what’s really important next week is Butterfingers, not ballots.

It’s Halloween time, which means you’ll see plenty of witches and vampires. You’ll find these characters more amusing than frightening, but you don’t have to look far to find things that are a bit more alarming — such as these scary investment moves:

   •    Paying too much attention to the headlines. Some headlines may seem unnerving, but don’t abandon your investment strategy because the news of the day appears grim.

    •    Chasing “hot” investments. You can get “hot” investment tips from just about anybody. But even if the tip was accurate at one point, it may already be cooling down. And it may not be appropriate for your individual risk tolerance and goals.

    •    Ignoring different types of investment risk. Most investors are aware of the risk of losing principal when investing in stocks. But all investments carry some type of risk. For example, with fixed-income investments, including CDs and bonds, you’ll encounter inflation risk — the risk that your investment will provide you with returns that won’t keep up with inflation, resulting in loss of purchasing power over time. Another risk is interest-rate risk — the risk that new bonds will be issued at higher rates, driving down the price of your bonds. Bonds also carry the risk of default, though you can reduce this risk by sticking with bonds that receive the highest ratings from independent rating agencies.

 •    Failing to diversify. If you only own one type of investment, and a market downturn affects that particular asset class, your portfolio could take a big hit. But by spreading your dollars among an array of vehicles, such as stocks, bonds and government securities, you can reduce the effects of volatility on your holdings. (Note that diversification cannot guarantee profits or protect against loss.)

    •    Focusing on the short term. If you concentrate too much on short-term results, you may react to a piece of bad news by making investment moves that are counterproductive to your goals. If you’re constantly seeking to instantaneously turn around losses, you’ll likely rack up fees, commissions and possibly taxes. Avoid these hassles by keeping your eyes on the future and sticking to a long-term, personalized strategy.

You can’t always make the perfect investment choices. But by steering clear of these “scary” moves, you can work toward your long-term goals and hopefully avoid some of the more fearsome results.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

Information provided by Karl Ritland, Edward Jones, 1100 N. Hickory Blvd., Suite 201, Pleasant Hill, 266-8188, www.edwardjones.com.





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