Knowing that financial markets are constantly changing, it's often hard to gauge the best time to jump in. Trying to time your investments in this way can cause you undue stress and cost you financially when you try to invest by guessing when the market has hit the top or the bottom. Fortunately, however, there are several timeless strategies that can help you eliminate the emotional component and get you on the right track to successful investing.
Think long term. While past performance is never a guarantee of future results, the markets have historically performed well over the long run. Successful investors are the ones who develop the discipline and patience to stay the course over the long run, despite market fluctuations.
Patiently accept volatility. Building on the last point, it's important to realize that market highs and lows are a natural occurrence and should be considered a normal part of investing. Once you accept that fact, you can prepare yourself to resist the emotional urges to jump in and out of the market based solely on its current direction.
Stay in the market. Some investors attempt to time the market. When it's down, they sit on the sidelines waiting for it to rally before they get in on the action. Conversely, when the market is up, they wait for a correction so they can buy at what they see as bargain rates. Moving in and out of the market by timing its ups and downs is a skill not even the most seasoned investment professionals have mastered. Consistent investment - in both up and down markets - will produce more reliable results over time.
Diversify. Possibly one of the most important investment principles - and at the same time most overlooked - is the need for careful asset allocation. The popular adage that tells you not to keep all your eggs in one basket is especially true when it comes to your investments. A well-diversified portfolio should include complementary asset classes, so they can cushion each other against the effects of market downturns and lower your portfolio's overall risk.
Watch your asset allocation. Even if you properly diversify your portfolio in the beginning, changing markets will affect the value of your investments and could alter your actual allocation. Consistent reviews will help you identify when your portfolio needs to be rebalanced, helping you maintain a proper asset mix.
Pay yourself first. You may have heard this before, but it's certainly worth repeating: Save first and then spend what you have left, rather than spending first and saving what you have left. Inevitably, if you attempt to do the latter, you'll often find there's nothing left to save.
Reinvest dividends. Many quality companies have a history of paying dividends, regardless of overall stock market performance. Reinvesting these dividends offers an excellent way to easily build your stock positions.
Set goals. While this may seem like the most basic idea, it's still one of the most important. When considering your investments, you need to have a clear idea of where you are, a goal in mind of where you want to go, and then put strategies in place to help you get there. By incorporating all of the above-mentioned ideas, you will have a guide to help you in all your important investment decisions.
A.G. Edwards generally acts as a broker-dealer, but may act as an investment advisor on designated accounts, and the firm's obligations will vary with the role it plays. When working with clients, the firm generally acts as a broker-dealer unless specifically indicated in writing. To better understand the differences between brokerage and advisory services, consult "Important Information About Your Relationship With A.G. Edwards" on agedwards.com.
This article was provided by A.G. Edwards & Sons. Member SIPC.
Michael Libardi, financial consultant, can be reached through A.G. Edwards & Sons, Member SIPC, 1540 Cornerstone Blvd., Suite 110, Daytona Beach, or at (386) 274-5488.