Most investment experts agree that you should carefully evaluate your investment plan regularly — not less often than once per year. January seems to be as good a time as any to reconsider your overall investment plan and to implement any new changes.
2008 was a bad year for investors no mater how you look at it. But the market taught us several important lessons. The investor who pays attention to those lessons and learns from them will prosper going forward. Here are few things we all should have learned:
- You have to take charge of your own investments. You should not rely exclusively on investment advisers, portfolio managers, and whatever investments happen to be offered by your company’s 401(k) plan. After all, this is your retirement on the line, not theirs. So take the time to study and reflect upon any investment or asset allocation recommended or offered to you, and pay particular attention to the fees and commissions that will be charged. Often, advisers, stockbrokers, and others have financial incentives to sell products that are not always the best for you.
- Diversify. If you are going to use financial advisers, use more than one. Don’t put all your finances with one adviser or in one mutual fund. If you own individual stocks, diversify across industries and according to market cap. If you seem to be receiving inconsistent advice from your advisers, challenge their recommendations until you understand which one is right for you. This process will both help you to understand your investment strategy better, and will serve to minimize the chance that you would lose everything if it turns out to be a scandal like that involving Bernie Madoff.
- Never invest in something you don’t understand. The business of Fannie Mae and Freddy Mac was never simple enough for the average investor to understand. Likewise, Enron’s energy trading business seemed to manufacture income out of thin air. It turns out the value of all these stocks was artificial. If you stick to simple stocks whose business you can understand and who make income from the sale of real product or services, you will do much better in the long term.
- Invest more money, more consistently. We know, your savings just fell 40% last year. This means you need to invest more now to achieve your retirement goals. Don’t leave your money out of the market based upon expert predictions, because timing the market is not only risky but impossible. Just because all the experts agree that 2009 will be a bad year doesn’t mean that they will be right. Most economists failed to predict the recession we are presently in. In the long term, as long as you have a time horizon of more than five years you will benefit by investing regularly without trying to predict short term market moves or trying to call the “market bottom.”
This list was based, in part, upon an article titled “Twelve Lessons for Investors From a Terrible 2008,” written by Brett Arends that appeared in the Wall Street Journal on December 29, 2008.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. The firm also has an active practice in representing individuals in employment disputes with brokerage firms. The firm is currently involved in representing several brokers in such disputes. In the past year, the firm has won arbitration award for clients in employment disputes in the amounts of $1.7 and $3.9 million. For further information, please contact www.pageperry.com.