1.) I resolve to turn off the news.
Or at least understand that the media creates crisis out of nothing and that as a long term investor, the current crisis, whether it be a “fiscal cliff”, European debt woes, higher taxes or whatever , will not deter you from your plan. I have been in this business for over 27 years now. I’ve seen the crash of ’87, the S&L meltdown, the tech bubble burst, the real estate bubble burst, flash crashes, 9/11, four recessions. When I started, the Dow Jones Industrial Average was around 1800. Today it is over 13,200. Just saying….
2.) I resolve to stay diversified.
Nick Murray put it so well when he penned, “diversification is the conscious choice not to make a killing, in return for the blessing of never getting killed.” Having a portfolio of different asset classes and investments inside those asset classes may reduce risk*. Ask the people who put all their money into real estate in 2007 how they are feeling today. People who wing to hit home runs strike out a lot more than they hit one out. Consistent “singles” wins more games.
3.) I resolve not to chase the “hot performer.”
Chasing the hot performer, whether it be gold, real estate, Apple stock, high yield bonds will generally lead to disappointment, because if it’s already a hot performer, then you have either missed the train or gotten on at the end of the ride. About the time that people start thinking that the sky is the limit for an investment, is about the time the sky starts falling.
4.) I resolve to purchase more of my investments when they are on sale.
When something you need is on sale, don’t you buy it? Or buy more of it? Of course you do, we all do. Resolve to take that approach with your investments. Investments are the only thing we tend to buy more of when the prices are rising and run away from when prices are dropping. That’s because when stock prices fall, the media tells you the world is ending, not that these investments are now on sale. Have you ever heard or read a headline that says, “Stocks in the S&P 500 Index are on sale by 20%!” No, it’s more like “Stocks Crash! Investors lose 20%!” Resolve to be a buyer when investments go “on sale.”
5.) I resolve to follow my advisor’s advice.
This resolution assumes that you have a relationship with a competent financial advisor. If you don’t, you should. My guess is that you wouldn’t perform surgery on yourself. Most of us probably can’t fix our own cars anymore. We turn to professionals. Not only do we turn to them, but we generally listen to them and follow their advice. Why do we think we can navigate through the modern maze of finances by ourselves? Or even worse, hire a professional to help us and then not follow their advice.
*Diversification and asset allocation strategies do not assure profit or protect against loss.
Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.
Copyright ©2012 Mike Berry. All Rights reserved. Commercial copying, duplication or reproduction is prohibited.
