Water Well Journal
Issue link: http://read.dmtmag.com/i/681918
T here is no magic bullet of investing. Nope. No surefire technique will make you rich. But there are many investing mistakes that obstruct the road to financial security—potholes that will hinder your journey. Here are eight of the most common money and investing mistakes I have seen over the years. (There are some I have committed myself.) Failing to start early "Nothing beats the combined power of steady savings and compounding," says Rick Pierchalski, CEO at BPU Invest- ment Management in Pittsburgh, Pennsylvania. "The younger you begin investing, the more likely you will reach your in- vestment goal, be it saving for a mortgage, college education for children, or retirement. "For example, a 25-year-old woman who wants to have $1 million at age 65 in her tax-deferred IRA account and thinks her investments will yield 6 percent a year, has to put $6100 into the account per year. If the same woman waits until age 40 to start her IRA, she will have to feed it $17,200 per year to have $1 million at age 65, based on that same average per- formance of 6 percent." While it's never too late to start taking advantage of the miracle of compounding interest, the earlier you start, the smoother will be your journey down the path to financial security. Making decisions based on emotions Emotions play a vital part in the lives of most people. Choosing a mate, deciding on a profession or occupation, picking a place to live, picking friends—are a few of the most obvious. Emotions have a rightful place in decisions like these. But allowing emotions to intrude into your financial affairs is usually a serious mistake; for example, buying and holding stock in a company because you happen to like its product. When it comes to investing, stick with the facts. Go with your head, not your heart. Failing to set an appropriate asset allocation If there is one principle virtually all investment profession- als agree on, it's the need to set and maintain an allocation of your assets suitable to your own situation and goals. Asset allocation refers to the process of dividing your in- vestable assets among stocks, bonds, and cash. While there are a number of other possible investment choices, such as real estate investment trusts, the majority of investors limit their investments to the three mentioned above. The mix of stocks, bonds, and cash that is right for you at a given point in your life will depend on such things as your age and your tolerance for risk. For more information on asset allocation, log on to http://money.cnn.com/retirement/guide/ investing_basics.moneymag/index7.htm. Failing to rebalance your portfolio at least once each year Once you allocate your assets in the manner you feel is right for you, it's important to rebalance at least once a year. As the price of equities goes up or down, the ratios you have established among stocks, bonds, and cash will change. If the value of your equities has risen, you may want to sell off some of them to restore your original ratios. If their value has dropped, moving more cash into equities may be appro- priate to restore balance. Failing to rebalance periodically guarantees your original asset allocation will become distorted over time, thus nullify- ing your original goal. Trying to time the market Waiting for stocks to hit "bottom" before you buy or hit the "top" before you sell has long since proven to be a losing game for investors. While you might get lucky once in a while with timing to buy or sell, that luck isn't likely to last. You may have heard about "day traders." Those are the folks who try to make a living by timing the market. Turnover among day traders is extremely high; most quickly wind up going back to their original "day jobs." Day traders who lose everything are not uncommon. Instead of trying to time the market, select the stocks or mutual funds you buy only on the basis of sound fundamen- tals. Placing market-timing buys or sells is speculating, not investing. WILLIAM J. LYNOTT YOUR MONEY INVESTMENT DECISIONS Avoid these eight money and investing mistakes. waterwelljournal.com 52 June 2016 WWJ Waiting for stocks to hit "bottom" before you buy or hit the "top" before you sell has long since proven to be a losing game for investors.