By Edward Jones, submitted by Paul Harris
Summer is here — which means a vacation most likely isn’t far away. Whether you’re hitting the road, jumping on a plane, or even enjoying a “staycation” at home, you’re probably looking forward to some down time with your family. But not every aspect of your life should be relaxed. Specifically, you don’t want to take a vacation from investing — which means you need to become a diligent, year-round investor.
Here are a few suggestions that can help:
- Keep on investing. Don’t head to the investment “sidelines” when the financial markets experience volatility. You don’t want to be a nonparticipant when things turn around because, historically, the early stage of any market rally is generally when the biggest gains occur. (Keep in mind that past performance of the market is not a guarantee of future results.)
- Keep learning. In just about any classroom, the best students are the ones who get the most out of their education and put their learning to the best use. And the same is true of the investment world: The more you know about the forces that affect your investments’ performance and about why you own the investments you do, the more likely you are to make the right moves — and the less likely you’ll be to make hasty and unwise decisions.
- Keep your focus on the long term. As an investor, you need to look past events such as natural disasters, recession fears, and political instability abroad that may have noticeable short-term effects on the financial markets but little impact over the longer term. So instead of making investment decisions based on today’s headlines, think about what you want your financial picture to look like in 10, 20, or 30 years and take the appropriate steps to help make that picture materialize. These steps include following a long-term, disciplined investment strategy that’s suitable for your individual needs, making adjustments as time goes on, and working with a professional financial advisor who knows your situation and can help you make the right choices.
- Keep looking for growth opportunities. To achieve your long-term goals, such as a comfortable retirement, you’ll need to own growth-oriented investments, such as stocks and other investments that contain equities. The percentage of your holdings devoted to stocks should be based on your risk tolerance, time horizon and proximity to retirement. But no matter what your situation, you want a portfolio that’s designed to help you meet your investment goals.
Keep relying on “hardworking” investments. To help ensure your investments are working hard for you, choose those vehicles that can help you in multiple ways. For example, when you invest in a 401(k) or other employer-sponsored retirement plan, your money grows on a tax-deferred basis, which means it can accumulate faster than if it were placed in an investment on which you paid taxes every year. (Keep in mind that taxes are due upon withdrawal, and withdrawals prior to age 59½ may be subject to a 10% IRS penalty.) Plus, you typically fund your 401(k) with pretax dollars, so the more you put in each year, the lower your taxable income. Furthermore, with the choices available in your plan, you can create a good mix of investments.
Enjoy your vacation this summer. But no matter what the season, don’t take a break from investing. Your efforts may pay off nicely for you in the future.