Invest Wisely

To help accumulate the money you need for retirement, you should think about doing the following: determine your risk tolerance, diversify your investments, invest regularly, and look for funds with low expenses and fees.

The 2008 to 2009 stock market decline and ensuing recession made even the most seasoned investors more cautious. But that doesn’t mean you shouldn’t invest. What you need is an investment strategy that reflects your personal goals, values, and circumstances.

Financial advisors can help you create one by defining your investment objectives and risk tolerance. To chart your progress, you might want to try a tool like Envision®, a customized investment planning process that helps you identify and prioritize personal goals.
Unless your circumstances or goals shift, your investing mantra should be: “Stick with the plan.”
Investment objectives are based on your answer to two questions: What is the purpose of the money I hope to accumulate? And how much time do I have to get there?
Risk tolerance is your ability to manage your fear of a financial loss, balanced against your desire to see your money grow. Historically, riskier investments that go up and down in value also tend to offer the biggest gains over the long term.

Most of us need to accept some level of risk to reach our goals. In other words, you may need to consider some riskier investments such as stocks in your retirement account.

Please know that while stocks offer long-term growth potential, they may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations. Of course, you’ll also want to keep some money in safer, more liquid accounts, such as certificates of deposit, money-market accounts, and savings accounts.

You already have one advantage: According to studies at the University of California, women tend to be wiser investors than men. The reason? Men are more likely to be overconfident and make mistakes such as putting too much money on a stock tip.
What you may want to avoid
Wise investors typically do not try to “time the market” by selling stocks in anticipation of a market downturn or by jumping in hoping to catch a market upturn. They know that no one can reliably predict these turning points. They also don’t buy the latest hot investment just because it had stellar returns over the past three months.
What you may want to consider

  • Diversifying your investments
    A smart investor chooses a diverse mix of investments (including stocks and bonds) for long-term goals. A well-designed, diversified portfolio can help smooth out the market’s ups and downs while allowing you to take some risk.

    Asset allocation cannot eliminate the risk of fluctuating prices and uncertain markets. Diversification does not guarantee profit or protect against loss in declining markets.

  • Keeping investing costs low
    When looking at mutual funds or exchange traded funds (ETFs) take the funds sales charges and expenses into consideration. Are the funds’ expenses in line with other funds in its category? This is only one of many factors to take into consideration before investing in a mutual fund or ETF, but it sometimes can be overlooked.

    Exchange traded funds seek investment results that, before expenses, generally correspond to the price and yield of a particular index. There is no assurance that the price and yield performance of the index can be fully matched.

    Exchange traded funds and mutual funds are subject to risks similar to those of stocks. Investment returns may fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost.

  • Going on automatic pilot
    If you’re fairly new to investing or cautious by nature, consider setting up an automatic system that ensures you’ll be investing regularly. You could create an arrangement that allows an automatic monthly transfer of a set amount of money from your bank account to a mutual fund. A 401(k) or 403(b) retirement fund at work is another excellent way to invest automatically, because the money goes into the investment choice or choices you’ve prearranged.

    A periodic investment plan does not assure a profit or protect against a loss in declining markets. Since such a strategy involves continuous investment, the investor should consider his or her ability to continue purchases through periods of low price levels.

    Unless your circumstances or goals shift, your investing mantra should be: “Stick with the plan.”

Key Points:

  • Determine your risk tolerance with the help of an advisor.
  • Choose a diverse mix of investments.
  • Take management fees into consideration when looking at mutual funds or exchange-traded funds.

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