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Front Page - Friday, October 24, 2014

Avoid these scary investment moves

Financial Focus

Stan Russell

Whether you have young children or not, you’re probably well aware that Halloween is almost here. However, despite the plethora of skeletons and ghosts you might see floating around this week, you probably don’t have much to fear (except, possibly, running out of candy). But in real life, some things genuinely are frightening — such as “scary” investment moves.

Of course, investing, by its very nature, is not a risk-free endeavor. Ideally, though, these risks are also accompanied by the possibility of reward. Nonetheless, some investment moves carry very little in the way of “upside” potential and should be avoided. Here are a few to consider:

Not investing — The scariest investment move you can make is to not invest at all — because if you don’t invest, you are highly unlikely to achieve a comfortable retirement or meet any other important financial goals. In a recent survey conducted by the National Council on Aging and other groups, 45 percent of the respondents who were 60 or older said they wished they had saved more money, and almost one-third said they wished they had made better investments. So make investing a priority — and choose some investments that have the potential to provide you with the growth you’ll need to meet your objectives.

Overreacting to “scary” headlines — The financial markets like stability, not uncertainty. So the next time you see some news about domestic political squabbles or unsettling geopolitical events, such as conflicts in foreign lands, don’t be surprised if you see a drop, perhaps a sizable one, in the Dow Jones Industrial Average and other market indices. But these declines are usually short-lived. Of course, the markets do not exist in isolation — they can and will be affected by what’s happening in the world. Yet, over the longer term, market movements are mostly governed by mundane, non-headline-grabbing factors, such as corporate earnings, interest rate movements, personal income levels, and so on. Here’s the point: Don’t overreact to those scary headlines, or even to short-term market drops. Instead, focus on the fundamentals driving your investments — and maintain a long-term perspective.

Chasing hot investments — You can receive tips on “hot” investments from multiple sources: television, the Internet, your friends, your relatives — the list goes on and on. But by the time you get to these investments, they may already have cooled off — and, in any case, may not be appropriate for your needs. Stick with investments that offer good prospects and are suitable for your risk tolerance.

Failing to diversify — When it comes to investing, “too much of a good thing” is a relevant term. If your portfolio is dominated by one type of asset class, such as aggressive growth stocks, and we experience a downturn that is particularly hard on those stocks, you could face sizable losses. But if you spread your investment dollars among growth stocks, international stocks, bonds, government securities and certificates of deposit (CDs), you can lessen the impact of a market drop. Keep in mind, though, that while diversification can reduce the effects of volatility, it can’t guarantee a profit or prevent losses.

Halloween is over quickly. But scary investment moves can have a lasting effect — so stay away from them.

 This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. (Member SIPC). Contact Stan at Stan.Russell@edwardjones.com.