Work to become a better investor
August 22, 2013
On Sept. 2, we observe Labor Day. A federal holiday since 1894, Labor Day celebrates the achievements of American workers — people, like yourself, who work hard for their money. But to make progress toward your long-term financial goals, you need to do more than just earn money — you have to invest it wisely. And that takes work, too.
Fortunately, there's no real mystery to the types of labor in which you'll need to engage to become a good investor. Here are a few suggestions:
Work to make investing a priority. Many people delay investing until they "have a better handle" on their finances. But these good intentions frequently go unfulfilled because there will always be something else on which to spend one's money. To work toward your important goals, such as a comfortable retirement or a child's education, you need to put away some money regularly. If you're just starting out in your career, you might not be able to afford much, but even a small amount can help. And when your salary increases, so can your investment contributions. To make it easier on yourself, consider arranging for your bank to automatically move money each month from your checking or savings account into an investment account.
Work to understand what's in your portfolio. Some investors aren't certain about what investments they own — and this uncertainty can lead to poor decision-making if it becomes necessary to make changes. So make sure you know what's in your portfolio — and why.
Work to keep your portfolio current with your goals. Even if you know why you initially purchased certain investments and how they fit into your portfolio, you can't put things on "autopilot." Over time, your goals may evolve, which means you'll need to be vigilant in working with your financial advisor to adjust your portfolio accordingly.
Work to diversify your holdings. No matter where you are in your life, you will still need to diversify your portfolio by owning a variety of investments — stocks, bonds, government securities and other vehicles. Consequently, you'll need to review your portfolio regularly to ensure that it's still properly diversified. Diversification is a strategy designed to help reduce the effects of volatility on your holdings, but keep in mind that even a diversified portfolio can't guarantee profits or protect against loss.
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Work to maintain a long-term perspective. No matter what you might hear from anyone else, there's no "shortcut" to investment success. Many people hope they will "hit" on that one investment that will make them rich quickly — but that's pretty much a fantasy. To help achieve your goals, you will need to invest for many years, through good markets and bad. And during those inevitable downturns, you'll need to focus on your long-term objectives and follow a consistent investment strategy, making only those adjustments that make sense for your situation.
As you can see, you'll need to work on many aspects of investing to stay on the road toward success. But you don't have to work alone: Investing can be complex, so you may want to get help from a financial professional — someone who knows both the investment world and your individual needs, goals and risk tolerance.
Doug Drost is a certified financial planner for Edward Jones, 2262 Reno Highway, in Fallon.