Family and Consumer News: Strategies for successful investing

By: Adrianne Vidrine

The secret is that there is no magic formula or foolproof strategy when it comes to investing. Despite what you may have heard to the contrary, there is no overnight path to investment success. However, there are basic financial planning principles and investment strategies that have stood the test of time.

Below is a description of 10 such strategies. While these are not new, they can help investors navigate today’s uncertain investment environment.

•Save 10 percent of what you earn. Research on millionaires indicates most grew their portfolios over time through regular investment deposits. The process of saving a fixed amount of money at a fixed time interval, for example, $50 per month, is called dollar cost averaging. If saving 10 percent of earnings is impossible, start with less, maybe four percent, and give your savings a raise when your income increases or when household expenses, like child care or a car loan, end.

•Set goals and match your time horizon. Match your investments with the time horizon for your financial goals. Place money you will need within five years in short-term financial instruments, such as certificates of deposit (CDs), money or market mutual funds.

•Have reasonable expectations. Stocks have returned a little over 10 percent, on average, since 1926. Investors who expect returns greater than long-term averages are likely to fall short of their goals.

•Diversify. This means building and maintaining a portfolio that includes different types of asset classes (e.g. stocks, bonds, real estate and cash equivalents) and different types of investments within each asset class (e.g. large, medium and small companies and bonds issued by both government and corporations). Because growth and earnings may vary by type of investment, periodically rebalance your portfolio.

•Don’t panic, take a long-term perspective. Large market gains often follow large market losses. If you panic and sell stock during a prolonged market downturn, you may miss the rebound that happens afterwards.

•Don’t be a market timer. To succeed, market timers must be right twice, about when to get out of the stock market and when to get back in. And they must be right often enough to offset transaction costs including income taxes and brokerage fees.

•Reduce investment costs. Costs matter. Every dollar spent on fees, commissions, transaction expenses, and income taxes is a dollar that is not making money for you. Look for mutual funds with low expense ratios and low costs stocks that can be purchased directly from issuing companies.

•Buy the market. Consider using a broadly diversified stock index fund, such as one that tracks the Russell 3000 or Wilshire 5000 indexes, as the core of your portfolio. Most index funds have low expenses and provide returns close to the stock market index they are tracking.

•Ignore daily market “noise.” This includes daily stock market reports that describe the day-to-day volatility of stock and bond markets. Watching your investments too closely can lead to panic selling or unnecessary buying.

•Know the risks. Every investment has some type of risk. For example, cash assets have the risk of loss of purchasing power due to inflation. The primary risk affecting bond investors, especially today, is interest rate risk.

You may find more information similar to this, regarding personal information at extension.org.

For further information, you may contact Adrianne Vidrine at the LSU AgCenter at (337) 788-8821 or you can also visit our website at http://www.lsuagcenter.com.