David Lerner Associates: Four Common Investing Mistakes to Avoid
As you formulate your investing strategies for the year, it might be helpful to think about some investing moves that you probably shouldn’t make. David Lerner Associates Branch Manager Michael Cody identifies four of the most common investing mistakes that he sees:
1. Trying to time the market.The past five years provide a good illustration of the folly of trying to time the market. When the financial crisis hit in 2008 and the stock market plunged soon after, many investors got spooked and sold off most or all of their equity positions. The Dow Jones Industrial Average has now more than doubled since bottoming out in March of 2009, hitting a new record in March of this year.
“Unfortunately, investors who got scared and sold equities when the market hit bottom missed out on the subsequent stock market rise,” says Cody. Indeed, a total of $556 billion has been withdrawn from mutual funds focused on U.S. stocks since October 2007, according to the Investment Company Institute.
But with the stock market rebounding, $32 billion in net investments flowed back into mutual funds and ETFs focused on U.S. stocks in January of this year, one of the highest one-month figures ever. “This represents the classic example of selling low and buying high,” says Cody, “the exact opposite of what an investor’s goal should be.”
2. Chasing after the latest hot stock tip.With the proliferation of financial news programs on cable TV, it seems that there’s always some kind of hot new stock tip out there. But Cody says to be wary of the latest stock du jour. “Stock tips are a dime a dozen, whether they come from a talking head on cable TV or your Uncle Louie.”
“For most investors, a better strategy is to invest regularly in a diversified portfolio of mutual funds that’s tailored to meet their long-term investing goals as well as their tolerance for risk.”
3. Getting too caught up in the news.Similarly, investors sometimes get carried away by the latest headline news events — whether it’s the fiscal cliff, sequestration or debt ceiling negotiations. “The media plays these up and often makes it sound like they are going to have a catastrophic impact on the economy and the markets, but often this isn’t the case,” says Cody.
4. Not creating an emergency savings fund. Cody says that this is one of the most important, but also most neglected, financial and investing strategies for many people. “By creating an emergency savings fund, you’ll have a stash of money to fall back on in case you face some kind of financial emergency, like a major car or home repair, major medical bill or, in a worse-case scenario, job loss or layoff.”
Your emergency savings fund should be held in a liquid bank or money market savings account so it’s easy to access when and if you need it. Experts recommend that you try to accumulate between nine months and one year of living expenses in your fund, although the exact amount will vary for each individual or family based on their living expenses, income and job stability.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates 1 877 367 5960 http://www.davidlerner.com