The country has gone through some tumultuous times during the
past eight decades.
The country has gone through some tumultuous times during the past eight decades. The Great Depression, World War II, natural disasters, political turmoil, corporate scandals, terrorism.
Yet, through all these events, the stock market has survived – and even prospered. And there’s no reason to think things will be different in the future – which is why you need to have an investment strategy in place today.
Of course, if you read advertisements or browse the Internet or listen to telemarketers, you can find any number of “sure-fire”‘ strategies. Typically, these sales-driven techniques are not grounded in solid investment theories.
Unfortunately, though, many people are still susceptible to claims of “unbelievable opportunities” that must be acted upon “right now.”
Here are two things to keep in mind about such offers. First, if an opportunity is unbelievable, don’t believe it. Second, no true investment possibility must be acted upon right now. If it’s legitimate, it will still be there tomorrow.
That being said, what type of investment strategy should you follow? Everyone’s needs are different, of course, but you should consider these very important guidelines:
– Set realistic expectations. During the late 1990s, double-digit returns spoiled many investors. Historically, however, 15 percent or 20 percent returns are not the norm. If you base your financial plans on too-high expectations, you may fall short of your goals. That’s why it’s prudent to anticipate 6 percent to 7 percent returns on well-diversified portfolios.
– Buy quality. Always look for well-managed companies with proven track records. These are the firms that tend to be successful over the long run, despite occasional short-term difficulties. And these are typically among the first stocks to recover when the market improves from a down period.
– Stay diversified. Spread your investment dollars over a range of companies and industries. And then, diversify beyond stocks into bonds, certificates of deposit, money market accounts and government securities. The better diversified you are, the better your chances of having some holdings perform well, even while others may slump.
– Look for favorable buying opportunities. “Buy low and sell high” may be the oldest piece of investment advice around. Unfortunately, it’s impossible to follow because no one can predict when a stock will reach its high or low points.
Instead of fretting about this type of market timing, try to discern when good stocks might be attractively priced, as sometimes occurs in bear markets. And keep in mind, even though past performance does not guarantee future results, that in each of the 29 previous bear markets, the market eventually recovered 100 percent of its pre-bear value, and then moved on to new highs.
– Invest for the long term. Most people who try to make quick profits by picking “hot stocks” tend to get burned. Investing is a long-term process. If you’re going to succeed, you need patience, discipline and well-defined goals. And you need the ability to look beyond short-term losses and keep the faith in those high-quality investments you have chosen to help you accomplish your objectives.
We don’t live in a stress-free world. But no matter what happens, our economy and our markets do have the underlying strength and versatility to bounce back and move ahead. By following the tried-and-true investment principles described above, your financial fortunes can move ahead, too.
Financial Focus is provided by Mark Vivian, a representative of Edward Jones Financial Services. His office is at 615 San Benito St., suite 105. Phone 634-0694.
