The investing environment is more sophisticated and unpredictable than ever, perhaps even more confusing. For investors, growing and protecting assets are always primary concerns, thus, making an investing mistake is simply unthinkable.
Here are a few thoughts on investing that may help you to avoid some classic mistakes.
• Be clear about your financial goals and timeline
• Have a good understanding of the investments you're considering
• Stay abreast of market and economic trends
• Make sure your holdings are consistent with your goals
• Diversify to spread risks and increase earnings potential
• Know something about changing tax laws and legislation
• Stay invested for the long term
• Cut your losses on investments that no longer fit your portfolio objectives
• Reinvest interest and dividends to increase your earnings potential
The process of building wealth takes patience, discipline, knowledge and a solid background in the fundamentals of investing. As you plan for, and make major life decisions, let's ensure that your investments reflect considered forethought, rather than reactionary pressures stemming from investing mistakes.
Double your money ... when?
It's not a get-rich-quick scheme. It's the "Rule of 72" - an easy method for approximating the number of years it will take to double your money at a given compound interest rate.
For example, assuming a hypothetical investment returns a compound rate of interest of 10 percent per year, your investment should double in roughly 7.2 years. Just divide 72 by the assumed growth rate. In this case, 72/10 = 7.2.
Now factor in the impact of taxes. Assuming the investment is sold within a year of purchase and short-term capital gains and dividends are subject to a 30 percent income tax, you keep 70 percent of your 10 percent return. Your net after-tax growth rate drops to 7 percent and the same investment now takes longer, about 10.3 years to double (72 / 7.0 = 10.28).
Faster growth may be a simple as investing in the right kind of account. Think about contributing $3,000 to your IRA.
The tax-deferred compounding of your IRA funds can help you save more for retirement than the same amount of funds in a taxable savings account.
Also, you can use Rule of 72 to find the rate of return required to double your investment. Just divide 72 by the number of years that you want your money doubled.
I hope these ideas help you to achieve your investment goals. For more information, call me at 689-8704 or e-mail william.a.creekbaum@smithbarney.com.
• William Creekbaum, MBA, CFP, a Washoe Valley resident, is senior investment management consultant of SmithBarney, a financial services firm serving Northern Nevada at 6005 Plumas Street, Ste. 200 Reno, NV 89509.