By JIM BLANKENSHIP, Herald Online
We get all kinds of advice about money from the people around us. Even though they might be very trusted sources, those suggestions are not always good.
$100 bills (Photo by Mark Wilson/Getty Images)
Here are five commonly shared tips you should not follow.
‘Buy low, sell high’
This advice has endured through the ages, most likely because it is so simple. The problem is in practice: Knowing when a stock is appropriately low and appropriately high is impossible.
If there were some simple ways to know when a stock is low or high, then of course everyone would follow this maxim. Unfortunately, there isn’t. Fortunes are lost every day by folks attempting to find buy-low-sell-high opportunities.
Cost reduction and diversification – in time, asset classes, styles and tax treatment – are much better ways to go. If we must put a short, snappy phrase to describe this strategy, perhaps it should be: “Buy a little at a time, all the time, until you need the money – and then sell only as much as you need, when you need it.”
It doesn’t really fall off the tongue quite as easily, but you’ll find that the results are much more predictably in your favor.
‘This stock is really hot’
This one comes in many forms. You might hear it from a co-worker, in a financial magazine, via fax or over the phone. You might receive an email titled “Top 10 Mutual Funds to Buy Now!” or “My Broker Called Me About This Hot Opportunity!”
Steadily gaining ground in your investment accounts by following a solid, well-diversified investing plan is more likely to be successful. It isn’t sexy, but often the things that work best are pretty boring.
Better to be boring than wiped out by a wild ride on a questionable investment.
‘This is a great company; you should invest in it’
It seems simple: If you invest in only the best companies out there, your returns should be stellar as well. But great companies don’t necessarily make great investments.
They can falter, and if you pay too much for the stock, your returns might be far less than great.
In the long run, you are probably much better off leaving the stock picking to the pros – the managers of mutual funds – or using low-cost index mutual funds to invest in a broadly diversified variety of companies.
Read the full article HERE.
