FINANCIAL FOCUS
By Mike Allen
If you have children at home, you’re no doubt aware that it’s
the traditional back-to-school time. But even if your days of
parent-teacher conferences are in the past, or even in the
future, you can still find a place in your life for education.
You might want to start by educating yourself about investing.
To get the most out of your investment education, ask yourself
these questions:
• What are my goals? Your financial goals should drive your
investment decisions. You probably have short-term goals, such
as making a down payment on a home or paying for a vacation,
and long-term goals, such as saving for your children’s
college education or building resources for your retirement.
Once you’ve identified your goals, you can create an
investment strategy to help achieve them.
• What is my risk tolerance? Self-awareness is important in
every aspect of life, including your approach to investing. As
you create your investment portfolio, you need to understand
your own views on risk. Would you consider yourself an
aggressive investor — that is, someone who can accept a
relatively higher degree of investment risk in exchange for
potentially higher returns? Or are you a more conservative
investor — someone who is willing to take lower returns in
exchange for lower potential risk? Or perhaps you’re a
moderate investor, less risk-averse than some but less
aggressive than others. However you’d characterize yourself,
it’s essential that you factor in your risk tolerance when
choosing investments. Otherwise, you’ll likely end up causing
yourself needless worry over your investment portfolio’s
performance.
• When should I make changes to my investments? Once you’ve
built an investment portfolio, you shouldn't leave it on
“autopilot.” Over time, you most likely will need to add new
investments or sell others. However, try to avoid selling
quality investments just because their share price has dropped
— they may still have good long-term prospects. In general,
you should sell an investment under certain circumstances. For
example, if your goals have changed, you may find the need to
sell some investments and purchase others. You may decide to
sell an investment if it’s no longer what it was when you
purchased it. For example, maybe you’ve invested in a company
whose products are less competitive than they once were, or
perhaps the company belongs to an industry now in decline. And
finally, if your portfolio has become “overweighted” with
certain types of investments, you may decide to sell some of
them to bring your holdings back into balance, based on your
goals, risk tolerance and time horizon.
• Whom should I consult for help? You can do a lot to educate
yourself about investing, but when it comes to making the
right choices for your future, you may need help. A
professional financial advisor who is familiar with your
family situation, short- and long-term goals and investment
preferences can help you build and maintain a portfolio that
can help meet your needs. The investment world can be complex,
so the more knowledge you have on your side, the better off
you’ll be.
Take the time to learn as much as you can about investing.
It’s an education that can pay off in the long run.
Saturday, August 22, 2009
Tuesday, June 23, 2009
Don’t Let Your Investments Take a Vacation
By Mike Allen
Summer is almost here. And for many people, summer is synonymous with “vacation.” If you have children or grandchildren, they’re most likely on vacation from school, and if you’ve got the time and motivation, you may take a family vacation over the next few months. But there’s one part of your life that should never go on vacation — and that’s your investment portfolio.
How can you keep your investments working for you in all seasons? Here are a few suggestions to consider:
• Don’t stop investing. If you want your investment dollars to continue working, you can’t pull them out of the “work force.” Unfortunately, many people try to do just that by jumping out of the financial markets when they’re slumping. By doing so, these investors reason, they can avoid taking heavy losses while they bide their time until the market recovers. But if you make a habit out of trying to avoid the market’s bad days, you may end up missing some of its good ones. No one can predict when a bull market will begin, so if you’re out of the market when it starts, your “vacation” from investing could prove expensive.
• Don’t rely too much on “lazy” investments. Some investments, by their nature, are going to work harder to help you achieve your long-term goals. To be precise, stocks and stock-based accounts have the potential to help provide the growth you need, though of course the value of these securities can constantly fluctuate. Conversely, “lazy” securities such as certificates of deposit may produce returns that barely keep up with inflation. That’s not to say there’s no place for these types of investments in your portfolio — after all, they provide both current income and a high degree of preservation of principal — but you simply can’t rely on them to offer the long-term returns that can help you retire comfortably or attain other objectives.
• Don’t let your portfolio drift. If you buy a few investments here and there, without rhyme or reason, your portfolio may never work as hard for you as it should. And that’s why you need to develop a solid, cohesive, long-term investment strategy — one that accommodates your risk tolerance, time horizon and specific goals. Once you’ve established such a strategy, you can use it to determine the right investment mix for your portfolio. Over time, you may need to adjust that mix in response to changes in the financial world and your own life, but overall it should stay true to your strategy.
As you go through life, you’ll find it important to take a vacation now and then, to escape from the pressures of work and to enjoy extra time with family and friends. But there’s no reason to ever give your investments a day off — so do what you can to keep them gainfully employed.
Summer is almost here. And for many people, summer is synonymous with “vacation.” If you have children or grandchildren, they’re most likely on vacation from school, and if you’ve got the time and motivation, you may take a family vacation over the next few months. But there’s one part of your life that should never go on vacation — and that’s your investment portfolio.
How can you keep your investments working for you in all seasons? Here are a few suggestions to consider:
• Don’t stop investing. If you want your investment dollars to continue working, you can’t pull them out of the “work force.” Unfortunately, many people try to do just that by jumping out of the financial markets when they’re slumping. By doing so, these investors reason, they can avoid taking heavy losses while they bide their time until the market recovers. But if you make a habit out of trying to avoid the market’s bad days, you may end up missing some of its good ones. No one can predict when a bull market will begin, so if you’re out of the market when it starts, your “vacation” from investing could prove expensive.
• Don’t rely too much on “lazy” investments. Some investments, by their nature, are going to work harder to help you achieve your long-term goals. To be precise, stocks and stock-based accounts have the potential to help provide the growth you need, though of course the value of these securities can constantly fluctuate. Conversely, “lazy” securities such as certificates of deposit may produce returns that barely keep up with inflation. That’s not to say there’s no place for these types of investments in your portfolio — after all, they provide both current income and a high degree of preservation of principal — but you simply can’t rely on them to offer the long-term returns that can help you retire comfortably or attain other objectives.
• Don’t let your portfolio drift. If you buy a few investments here and there, without rhyme or reason, your portfolio may never work as hard for you as it should. And that’s why you need to develop a solid, cohesive, long-term investment strategy — one that accommodates your risk tolerance, time horizon and specific goals. Once you’ve established such a strategy, you can use it to determine the right investment mix for your portfolio. Over time, you may need to adjust that mix in response to changes in the financial world and your own life, but overall it should stay true to your strategy.
As you go through life, you’ll find it important to take a vacation now and then, to escape from the pressures of work and to enjoy extra time with family and friends. But there’s no reason to ever give your investments a day off — so do what you can to keep them gainfully employed.
Wednesday, May 27, 2009
Investing Lessons from the Vineyards
By Mike Allen
May 28, 2009
As an investor, you can get plenty of advice from financial experts on the evening news or cable financial shows. But you may actually be able to learn some deeper truths about investing by observing other professionals — such as winemakers.
At first glance, you might not see what these “guardians of the grape” can teach you about building an investment portfolio. After all, they’re shaping Sangiovese while you’re seeking stocks, they’re bottling Burgundy while you’re buying bonds, and they’re mastering Malbec while you’re monitoring mutual funds. Where’s the connection?
Start by considering the life cycle of wine and the concept of “vintage.” For example, a particular wine is labeled a 2005 vintage if it is made from grapes that were predominantly grown and harvested in 2005. Yet given the requirements of wine production, this 2005 vintage may not actually hit the markets until 2008 — and some aficionados may think the wine won’t taste its best until 2018.
If you translated this type of scenario to the financial world, you could say that the 2008 investment “vintage” was not promising, given that the value of almost all investments — even the quality ones — fell last year. But if you were to hold these quality investments for the long term — as you should, because investing is a long-term activity — you might find that the 2008 vintage investments may eventually become productive vehicles that can help you achieve your financial goals.
So, what lessons can you learn from winemakers? Here are a few suggestions:
• Be patient. Winemakers put a lot of time, effort and money into planting today’s grapes — for which they will not see one penny of profit for many years. Yet they have the discipline to wait patiently until the products of their labors come to fruition. Are all their wines successful? No — and all your investments may not be, either. But given enough time, quality investments can usually help you work toward your financial goals.
• Have faith in your strategy. Wine drinkers’ tastes can change from year to year. Yet winemakers don’t rip out their vineyards and replant them with today’s “hot” varietal. Instead, they cultivate the grapes they’ve planted, make the best wine they can and maintain their belief that their products will find a market. As an investor, you can’t allow yourself to be swayed by today’s hot tips and trends. Instead, build a portfolio of quality investments that can stand the test of time.
• Adapt your goals to your situation. One of the most famous winemaking regions in the world, Napa Valley, contains a number of microclimates that vary by temperature, rainfall and soil. Napa Valley winemakers know which grapes will do best in which microclimate, and they concentrate their efforts accordingly. And you, as an individual investor, should make your investment decisions based on your own “microclimate” — your risk tolerance, family situation, time horizon and other factors. In other words, you should choose those investments that are best suited for you and that have the best chance to help you meet your goals.
Investing, like winemaking, is filled with challenges. But by observing how winemakers work, you may learn some things that can eventually help you raise a glass to your own success.
May 28, 2009
As an investor, you can get plenty of advice from financial experts on the evening news or cable financial shows. But you may actually be able to learn some deeper truths about investing by observing other professionals — such as winemakers.
At first glance, you might not see what these “guardians of the grape” can teach you about building an investment portfolio. After all, they’re shaping Sangiovese while you’re seeking stocks, they’re bottling Burgundy while you’re buying bonds, and they’re mastering Malbec while you’re monitoring mutual funds. Where’s the connection?
Start by considering the life cycle of wine and the concept of “vintage.” For example, a particular wine is labeled a 2005 vintage if it is made from grapes that were predominantly grown and harvested in 2005. Yet given the requirements of wine production, this 2005 vintage may not actually hit the markets until 2008 — and some aficionados may think the wine won’t taste its best until 2018.
If you translated this type of scenario to the financial world, you could say that the 2008 investment “vintage” was not promising, given that the value of almost all investments — even the quality ones — fell last year. But if you were to hold these quality investments for the long term — as you should, because investing is a long-term activity — you might find that the 2008 vintage investments may eventually become productive vehicles that can help you achieve your financial goals.
So, what lessons can you learn from winemakers? Here are a few suggestions:
• Be patient. Winemakers put a lot of time, effort and money into planting today’s grapes — for which they will not see one penny of profit for many years. Yet they have the discipline to wait patiently until the products of their labors come to fruition. Are all their wines successful? No — and all your investments may not be, either. But given enough time, quality investments can usually help you work toward your financial goals.
• Have faith in your strategy. Wine drinkers’ tastes can change from year to year. Yet winemakers don’t rip out their vineyards and replant them with today’s “hot” varietal. Instead, they cultivate the grapes they’ve planted, make the best wine they can and maintain their belief that their products will find a market. As an investor, you can’t allow yourself to be swayed by today’s hot tips and trends. Instead, build a portfolio of quality investments that can stand the test of time.
• Adapt your goals to your situation. One of the most famous winemaking regions in the world, Napa Valley, contains a number of microclimates that vary by temperature, rainfall and soil. Napa Valley winemakers know which grapes will do best in which microclimate, and they concentrate their efforts accordingly. And you, as an individual investor, should make your investment decisions based on your own “microclimate” — your risk tolerance, family situation, time horizon and other factors. In other words, you should choose those investments that are best suited for you and that have the best chance to help you meet your goals.
Investing, like winemaking, is filled with challenges. But by observing how winemakers work, you may learn some things that can eventually help you raise a glass to your own success.
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