9 Essential Tips Every Investor Should Know - Page 2 of 4 - Black Enterprise

9 Essential Tips Every Investor Should Know

Life is often a bit easier when you receive a word of wisdom to guide you along the way. Here, you'll read some wise words from financial planners on retirement, saving, investing, budgeting, and managing your finances.

Keep your emotions in check.
Many people invest with their hearts, rather than their heads. Train yourself to use solid, rational reasoning based on good research. And while the markets are clearly emotionally charged, that doesn’t mean your own investment strategy should be, says Steven Siebold, the Palm Beach, Florida-based author of How Rich People Think. Keep feelings out of the equation, and the investment should not only be more sound, but also more financially viable. “Try to switch over to logic-based thinking,” says Siebold, “and leave your emotions by the sidelines.”

Don’t try to be a market timer.
Sticking to a sound, diversified investment philosophy that doesn’t rely entirely on the whims of the market helps you avoid losing too much by changing strategies too late or too soon. “Still licking their wounds, many jittery investors pulled all their assets out of the stock market just as it hit bottom two years ago,” says Barnes. “In the time since, while they’ve remained on the sidelines, equity markets have bounced back significantly. In some cases, that recovery has represented missed opportunities to recuperate much of what was lost.” Bottom line: A University of Michigan study found that, over a 30-year period, market timers averaged an annual return of 3.28% whereas long-term-minded investors averaged 11.83% per year.

Identify opportunities for yield.
For those investors who aren’t quite ready to venture back into stocks yet, Barnes says it may make sense to dial up the risk tolerance beyond low-yielding Treasuries and look into bonds that offer higher yields. “The search for yield doesn’t have to be a giant leap,” says Barnes, who adds that investors can find opportunity in the middle of the quality spectrum. “Certain investment-grade corporate bonds and higher quality, high-yield bonds offer greater yields than Treasuries, with better compensation for inflation risk.” Dividend-paying stocks provide another option. The stocks of financial services and utility companies are the traditional choices for investors interested in dividends, but it’s wise to keep your options open. Dividends on common stocks are not guaranteed, while preferred stockholders receive a fixed rate of return, notes Barnes. If you are interested in adding an array of dividend-paying stocks to your portfolio, look for mutual funds that focus on “equity income,” “dividend income,” or “growth and income.”