Here are eight suggestions that could help you be
a better investor in 2016.
#1 Slow and Steady
When it comes to the stock market, the fable about the tortoise and
the hare is true. Successful investors get rich slowly. Avoid the
temptation to swing for the fences.
#2 Put Compounding to Work
Compounding means that you reinvest your returns rather than
spending them. Thanks to the power of compounding; a regular
investment plan can yield surprising results. For example, say you
start with nothing and invest $100 every month. Assuming 10%
annual returns (roughly equivalent to the overall market), you’ll
have $21,000 after 10 years, $77,000 after 20 years, and $228,000 if
you stick with your plan for 30 years.
You can benefit from the power of compounding by committing to an
automatic investment plan. The easiest way to do that is by setting
up an account with a broker or mutual fund that automatically
deducts a fixed amount from your bank account every month.
#3 Take a Long View
Avoid making decisions based on recent market action. As a group,
individual investors pour money into hot markets just before they
cool, and shun weak markets primed to soar. The market can turn on a
dime. You’ll often miss a major move by the time you realize what
#4 Ignore Market Gurus
It’s scary when you hear that the guru who predicted the last bull
market is now forecasting a crash. But, there’s always someone
predicting just about anything. Just because one of them got it
right once doesn’t make them Nostradamus. Make your decisions based
on a firm’s fundamental outlook, not on market predictions.
#5 Avoid Decisions Based on Interest Rates, Etc.
Many smart people have gone broke by betting wrong on which way
interest rates, the price of gold, the value of the dollar, or oil
prices are heading. Avoid investments that depend on such
predictions for success.
#6 Consider Dividend Stocks
Without dividends, the only way you make money on a stock is by
selling to someone else at a higher price. But dividend-stocks pay
you to own them so you can make money even if they don’t go up.
It’s tempting to load up on stocks in today’s hot industry. In times
past, that strategy worked because once in favor, an industry often
continued its winning ways for years. No more. Now, an industry can
turn cold overnight.
Instead, reduce your risk by diversifying. A sector is a major
segment of the economy such as industrials, consumer goods,
healthcare, technology or financials. Avoid investing more than 25%
of your funds in any one sector.
An industry is a part of a sector such as social networking stocks
(technology) or regional banks (financials). Avoid investing more
than 10% of your funds in any one
#8 Don’t Check Stock Prices All Day Long
Stocks make short-term up and down moves for unfathomable reasons
You’ll drive yourself crazy checking on your stocks too often. Once
a day is plenty and once a week is better.
Have a happy and prosperous New Year.