Investing

Three Steps to the Perfect Investment

Some people wrangle for days over the correct investment. They find websites, apply filters, read magazines and scour cable investment channels. Should you buy the stock that looks hot right now or the steady-eddie? Should you buy a mutual fund or opt for a few well placed stocks? How about real estate? Prices seem low now, so it seems like the time to buy.

These decisions aren’t fun. Just remember that as an investor, avoiding decisions doesn’t make reduce any pain. It keeps you from your goals.

After 16 years leading clients to good investments, I understand how easy it can be to freeze up and decide to forget the whole investment game because the right decision seems so difficult. How do you pick from the hundreds and hundreds of available investments? So many choices and so little money….what happens if you choose an investment and another turns out to be the big winner?

The good news is that choosing a worthwhile investment means avoiding that entire game. Actually, choosing investments is much easier than you think, if you remember one basic rule.

There is no perfect investment. Quit looking.

That should relieve some of your stress about investing. Much like athletes strive to run faster all the time, so it is with investing. You’ll chase perfection, and sometimes, accidently, you might get close, finding a juicy money-maker that met your goals. Unfortunately, even near-perfect investments don’t last forever, so when the fun ends you’ll turn around and begin the search again.

And you won’t find perfection again, because it isn’t there.

Instead, remember these investment rules and you’ll find success on a more frequent basis:

1)      Beginners should focus on diversification above all. When you’re starting out, you’ll be learning about the investment world. By choosing many investments rather than a single stock or bond, you’re less likely to make a mistake that costs you serious money.

2)      Begin with a mutual fund, no matter what you’ve read. I worked with many engineers who would get “deer in the headlights” evaluating investments. There are many negative points written about mutual funds, and many are true. However, mutual funds have three traits that are wonderful for beginners:

  1. Your hard-earned cash is pooled with many other investors to purchase a diversified collection of securities. In some cases, a fund might buy as many as 150 different stocks with your money!
  2. A prospectus that informs you of the fund’s objectives. Some funds buy only large company stocks and are trying to beat the S & P 500, the 500 biggest companies in the United States. Others have stocks and bonds and are trying to create smooth returns at a lower risk level than a stock-only fund. Still others are invested in money markets that rarely lose money, but won’t ever make much, either.
  3. A professional manager trades investments within the fund so you don’t have to worry about when to buy or sell.

3)      Review your fund’s performance quarterly, rather than every day. I know in the beginning, many of my clients would get excited about investments, but imagine how well things go when your boss is standing over your shoulder while you’re working. Would it make you better? Would it help?  No way! Funds don’t make money over short periods of time. They’re more like the turtle in the famous fable.

You won’t ever achieve greatness if you never make the decision to begin the search for investments. Like anything, once you’ve begun, you’ll learn from mistakes and start to master some of the basics. But much like a football player won’t learn without getting on the field, an investor can’t hope to invest without finding something to invest in and starting.