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One of the best things you can do for yourself and/or your family is to be prepared to manage your finances responsibly. Even if you see investing as overwhelming or complicated and boring, you need to know the basics behind a well-thought-out investment strategy — at least enough to protect yourself from fraud and/or communicate effectively with a financial professional or spouse.
Regardless of your level of investing experience, there are certain investor traits that can prove advantageous for anyone. Traits such as patience, willingness to confront and deal with mistakes and recognizing when help is needed can benefit portfolio returns. Even risk aversion, sometimes a problem for women who are concerned about their investing abilities, can be an advantage if it’s applied wisely.
Feel you aren’t as knowledgeable as you should be about investing?
Chances are you’re in good company. Plenty of people know less than they should but aren’t willing to recognize or admit it; as a result, their portfolios suffer. Recognizing what you don’t know can be an asset. Being willing to ask questions and understand some basics will serve you better than sticking your head in the sand.
If you make a mistake, can you admit and deal with it?
Many investors’ portfolios have suffered because of a failure to recognize an investing mistake and deal with it; instead, they hang on, waiting for a turnaround that may never come. As the saying goes, “Good investors know how to take profits; great investors know how to take losses.”
Are you risk averse in the right way?
When people feel unsure about their investing skills, they sometimes take the path of least resistance and invest very conservatively. In some cases, this can be helpful. However, this trait can also be a double-edged sword if you’re investing far more conservatively than is appropriate for your goals and circumstances, either out of fear of making a mistake or from not being aware of how risks can be managed.
You don’t have to become a financial wizard to understand principles that can help you manage risk.
Can you be patient?
A portfolio is — or should be — a means to an end, not a competitive sport. It’s a way to pursue your financial goals, rather than a measure of self-worth or a vehicle for bragging about how you “beat the market.”
Step Up Your Game
If you’re afraid to make decisions because you don’t know a mutual fund from an exchange-traded fund:
- Get some basic information. Your retirement plan at work might provide educational materials or assistance, and there are plenty of books, magazines and websites that can help.
- Take baby steps and learn as you go. You don’t have to do everything at once; even a small step is better than none.
- Don’t postpone getting started; the longer you wait, the fewer options you may have.
- Recognize that you’re not alone. Others may have the same doubts as you about their investing abilities.
If you’ve already started working toward your goals but aren’t sure you’re on the right track:
- Clarify your investing goals, your time horizon and your level of risk tolerance and make sure you’re properly diversified.
- Make sure your expectations for a return on your money are both realistic and sufficient to give you the best chance of achieving your goals. Don’t focus solely on risk, but also on potential reward and ways to try to manage risk.
- Understand what you own and what role each investment fills in your portfolio. Though asset allocation and diversification can’t guarantee a profit or eliminate potential loss, they can help you manage the types and levels of risk you take.
If you’re money savvy:
- Make sure your asset allocation adjusts to changes in your life circumstances.
- Don’t underestimate the impact of taxes, fees, expenses and trading costs on portfolio performance.
- Have a game plan to keep yourself from panicking during volatile markets.
Equipping yourself to pursue your financial goals is time well invested!
Zivney Financial Group is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
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