Good Morning Green Panda Friends! Today we are discussing basic investment strategies as well as different types of investments that are designed specifically for our personal financial goals. The most basic investment advice that I can provide to anyone is to buy low, sell high, and stay invested for the long term. Let’s look at each one of these basic investment strategies in further detail.
Basic Investment Advice #1: Buy Low and Sell High
No one can predict the market fluctuations. We have a 1 in 365 chance that we will buy our investments on the lowest day of the year, and sell them on the highest day of the year. Since those are really not good odds, the best investment advice is to continuously buy into the market on a regular basis.
The strategy of regularly buying Mutual Funds on a weekly, biweekly, or monthly basis through pre authorized contributions is called Dollar Cost Averaging. When we continuously purchase investments we are buying into the market when it is high and when it is low. Therefore, the average cost of our investment is lower than it would be if bought into the market on a high day.
Basic Investment Advice #2: Invest for the Long Term
It is very important to start investing at a young age and stay invested during market fluctuations. Very often people panic when the market is experiencing a downturn, and they sell their equity investments at a loss to purchase more secure fixed income investments. This is the exact opposite of a smart basic investment strategy. We want to buy low and sell high, not sell when the market is low and buy back in when the market is high.
We have to be comfortable with the level of risk versus return that comes with our investment options. Before you purchase your Mutual Fund or Stock Investments you have to ask yourself, am I comfortable with the potential return for the possible risk involved? If you are looking for a 7 or 8% return, then you also have to be comfortable with the possibility of your investment value declining by 7 or 8%.
If you are new to investing consider buying a Balanced Mutual Fund. This is a medium risk fund that will experience moderate fluctuations in the daily value. A Balanced Mutual Fund usually has a 60/40 asset allocation in Equity and Fixed Income. Mutual Fund Investors receive their account statement on a quarterly basis, it is important to review your quarterly investment account statement to make sure that you are comfortable with the risk versus return of your Mutual Funds.
Basic Investment Advice #3: Choose Personalized Investments for Your Goals
Many Mutual Fund Companies offer Select Portfolios and Target Date Mutual Funds which are designed for specific types of investors or for a target investment date.
Select Portfolios offer the perfect asset allocation for your individual investor profile. Select Income Portfolios, Balance Portfolios, Growth Portfolios, and Aggressive Growth Portfolios are offered by most Mutual Fund Companies. Select Mutual Fund Portfolios are the perfect solution for investors who want a simplified investment option, and who do not want the hassle of choosing their own individual investments.
Target Date Mutual Funds are designed for investors who are going to stay invested until their specific target date in the future. These funds are commonly used for investors who are investing for a specific goal such as saving for the down payment of a home, investing for their education, or saving for retirement.
Target Date Mutual Funds are more aggressive the farther away they are from the target date. Every year as we approach the target investment date the Mutual Fund asset allocation is rebalanced to become more secure and less risky.
Fidelity Investments offers the Fidelity Asset Manager Mutual Funds that focus on the asset allocation. Fidelity Asset Manager Mutual Funds are based on an Investors tolerance toward risk versus return. Fidelity also offers Lifecycle Mutual Funds which are also known as the Fidelity Freedom Funds. These Target Date Mutual Funds range from 2015 to 2050.