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By: Adrian Mastracci
North Shore News
Business Section, “Loose Change”
Sunday, January 5, 2003
Investors are wondering what to do in 2003 to turn
the ship around.
The tried and true investment strategies still work
very well. Moreover, they are expected to continue working
past 2003. So keep it simple, skip the fanciness.
Investing is about setting your course of action to
achieve a specific personal return. However, preservation
of capital still ranks high on the list.
Pace yourself. Accumulating your nest egg can be done
one brick at a time. Successful investing requires patience
and clear investment policies.
Don’t join the herd
You’ve heard that the herd is usually wrong.
When stock markets reach new highs, investor instincts
say buy. Conversely, when they reach new lows, investors
cannot jump off the train fast enough.
Instead, on your next portfolio rebalance, consider
lightening up on the outperformers and buying more underperformers.
Too many investors do the exact opposite. Such as those
who have just jumped from stocks to bonds in a big way.
Reasonable expectations
Consider what you want your nest egg to do for you.
Revisit your goals annually to reconfirm your path.
Your closeness to retirement, appetite for risk, income
requirements and saving capacity available for investment
also have an impact.
If you are retired, your nest egg has likely suffered
some setbacks. Revisit the retirement assumptions to
ensure that what you are doing is still appropriate.
Investment cocktail
Investment mix decisions have the biggest impact on
portfolios of any single factor. Know your investor
profile and resist the temptation to invest outside
of it.
Skip the many tempting fads. Most investors miss the
exit doors. Instead, make sure you have a broadly diversified
portfolio. Being diversified reduces the risks you take.
Consistent returns
Stop the preoccupation with chasing past investment
returns, and yesterday's winning stocks and mutual funds.
Seasoned investors have learned that.
The important element is the rate of return required
to achieve your goals. That rate becomes the minimum
investment target for your portfolio.
A portfolio with emphasis on consistent returns will
serve you better than one with emphasis on performance.
Especially yesterday's performance.
Lingering losses
Making portfolio selections is not about always being
right. Part of investing is about coming to grips with
the prospects of being wrong.
What hurts portfolios the most is not incurring the
losses. Rather it is keeping them far too long.
Astute portfolio managers do admit to being wrong.
Be objective, know when to fold and cut your losers.
Less tinkering please
Make an effort not to take investing so seriously. Being
totally up to date on all the financial happenings of
the day is not that important.
What then is a concerned investor to do? Stop reacting
to every daily market sneeze. Avoid making those hasty
decisions.
If stocks have that risky feeling, prune them gradually.
If stocks have the bargain bin feeling, buy them gradually.
You do not have to make all your bets all at once.
In short, look ahead and chart your personal course.
I know that it is hard to stick to a game plan during
uncertain times, like the present.
Understand what you pursue. Especially the investments
you select and all their costs.
Stay with the basics. They work. Investing does not
have to be complicated.
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