Many people look for the "secrets" to investment success. Is it timing the market just right? Is it finding those hot stocks or getting in on the "ground floor" of the next big thing? Actually, these types of moves have little relevance to the vast majority of investors -- even the most successful ones. So let's take a look at some steps you can take that can be effective in helping you work toward your financial goals.
- It's time in the market...not market timing. Some investors think they can succeed at "market timing" -- buying when the price is low and selling when the price is high. And this would indeed be a good strategy if they could predict highs and lows. No one can accurately forecast these peaks and valleys, though. So, instead of ducking in and out of the market in a vain attempt to catch the highs and lows, simply stay invested. The more time you spend in the market, the lesser the impact you're likely to feel from short-term price swings. And if you're always invested, you'll always be in a position to benefit from the next market rally.
- It's "buy and hold" -- not "buy and sell." Even if you aren't trying to time the market, you may be tempted to buy and sell frequently as you look for new and better opportunities. Yet, this constant buying and selling can be costly. Frequent trading, with all the additions and subtractions from your portfolio, can make it hard for you to follow a consistent, unified investment strategy. You're better off purchasing quality investments and holding them for the long term, until either your needs change or the investments themselves no longer possess the same attributes they did when you purchased them.
- It's building a strong foundation -- not getting in on the "ground floor." Many people regret not being one of the initial investors of a company that has done spectacularly well. But most new companies don't achieve anywhere near that level of success. So, instead of looking for the next big thing on the "ground floor," try to build a strong "foundation" consisting of a mix of quality investments suitable for your risk tolerance, goals and time horizon. This type of investing may not sound glamorous, but a strong foundation is better equipped than a possibly shaky ground floor to withstand the shifting winds of market forces.
- It's cool-headed thinking - not chasing "hot stocks" -- If you browse the internet or watch one of the investment shows on cable television, you are bound to read or hear about "hot" stocks. But by the time the news reaches you, these stocks may already be cooling off. Even more importantly, they might not be right for your needs in the first place. Instead of chasing after hot stocks, which, by their nature, carry a strong emotional component (namely, the desire for quick, big gains), try to coolly and dispassionately analyze your situation to determine which investments are really most appropriate for your goals.
There really aren't any shortcuts to reaching your desired financial destination. But by taking the slow and steady path, you can work toward getting there.
James M. Faust is a financial advisor with Edward Jones. A 2000 graduate of the University of Florida, he holds a bachelor's degree in Business Administration with a focus on marketing and a minor in economics.