Scary in­vest­ment moves to avoid

South Shore Breaker - - Health& Wellness - KEVIN DOREY FI­NAN­CIAL FOCUS kevin.dorey@ed­ward­jones.com

Yes, it’s Hal­loween time again, which means you’ll see plenty of witches and vam­pires scur­ry­ing around. You’ll no doubt 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.

Try not to pay too much at­ten­tion to the news head­lines of to­day — al­though some head­lines may seem un­nerv­ing — try not to aban­don your in­vest­ment strat­egy just be­cause the news of the day ap­pears grim.

Chas­ing “hot” in­vest­ments

You can get hot in­vest­ment tips from the talk­ing heads on tele­vi­sion, your next-door neigh­bour or just about any­body. But even if the tip was ac­cu­rate at one point, by the time you get to a hot in­vest­ment, it may al­ready be cool­ing down. Even more im­por­tantly, it sim­ply 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 if you shun stocks to­tally in favour of per­ceived “risk-free” in­vest­ments, you’d be mak­ing a mis­take be­cause all in­vest­ments carry some type of risk. For ex­am­ple, with fixed-in­come in­vest­ments, in­clud­ing GICS and bonds, one risk you may en­counter is in­fla­tion risk. This is the risk that your in­vest­ment will pro­vide you with returns that won’t even keep up with in­fla­tion and will, there­fore, re­sult in a loss of pur­chas­ing power over time. An­other risk you can in­cur is in­ter­est-rate risk. This is 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. (Keep in mind, though, that di­ver­si­fi­ca­tion can­not guar­an­tee prof­its or can 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 or to a pe­riod of ex­treme price volatil­ity, by mak­ing in­vest­ment moves that are coun­ter­pro­duc­tive to your goals. Fur­ther­more, if you’re con­stantly seek­ing to in­stan­ta­neously turn around losses, you’ll likely rack up fees, com­mis­sions and pos­si­bly taxes. Avoid all th­ese has­sles by keep­ing your eyes on the fu­ture and stick­ing to a longterm, per­son­al­ized strat­egy.

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

123RF

Some in­vest­ment choices are scarier than oth­ers.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.