I went on my annual yoga and meditation retreat in Greece last month and while I was there I visited Delphi. I decided to ask the Oracle for a little sage advice. While she did not have any hot stock tips for me, she did send me the message that I should avoid common mistakes.
That made sense to me, and I think it makes sense for investors as well. She also mentioned that I should get a sensible car, but I thought I would ignore that one for now. In keeping with some of the Oracle's message, I made note of some common investor mistakes and will share those with you.
Not having enough money on hand for emergencies
No one expects to lose a job or become ill, but it can happen, and the financial repercussions can be lasting. A good strategy is to keep enough money in a separate account to cover living expenses for up to six months. I give my clients advice to, at the very least, keep three months of generous expenses in a savings or money market account.
Do not keep this money in any asset that can fluctuate in value or has penalties for early withdrawal, but you may not want it in your regular checking account either. If you are like me, a big sale at Macy's can derail you if the money is too easy to access.
Delay the investment process
This can cause real damage to your financial future, because time is your greatest ally when investing. Even a relatively small amount of money can grow rapidly over time.
Don't try and time the market or you will always find a reason not to invest. When people ask me when is the best time to invest, I reply: When you have the money. Use dollar cost averaging and start socking it away.
Keeping too little in stocks
Many people keep too little of their assets invested in stocks or stock mutual funds and ETFs.That is unfortunate, because it is usually motivated by fear. While stocks will go up and down, history has shown that they are a good performer over time.
Compound annual growth rates for large company stocks from 1926 to 2004 have averaged over 10 percent, according to Ibbotson Associates. Small company stocks averaged even higher.
Paying too much in taxes
Millions of Americans can cut their tax bill each year if they take the time to consider their choices. Contribute as much as possible to your retirement plans and consider tax-free bonds and annuities.
Be aware of the costs involved and withdrawal provisions on 401k plans and annuities before you invest.
Buying yesterday's winners
Last year's best investment rarely turns out to be this year's best investment. Buy low and sell high is still my motto, so when you are looking at a stock that has risen rapidly, evaluate its potential to continue that positive trend.
Keep an eye on your retirement plan and rotate your positions, as markets can be cyclical.
Paying too much attention to momentum and not enough to fundamentals
Sometimes investors get caught up in the excitement of the market and buy stocks that are sky high. Remember the Internet stock bust in 2000?
When you are buying a stock, you are buying a piece of a business. Look at the fundamentals of the company. What do they do? Who is the competition? How much debt to they have? That annual report, although a bit boring, can be a wealth of information.
Being unprepared
Many investors make an investment believing it will only go up in value. The real estate market is a great example right now. You have to be prepared for investments to go down and if it does, are you prepared to hold it during tough times or buy more when prices are down?
A stock market decline should not cause major anxiety. It is often a great opportunity to buy shares of good companies at more favorable prices.
Failing to get professional advice
I cannot emphasize this enough. Not many individuals have the time or expertise to monitor the financial markets and make investment decisions based on intensive research.
During the height of the Internet stock frenzy in 1999, I had a local doctor tell me that I would soon be a dinosaur. No one needed professional advice anymore as it was all being provided by Internet trading companies.
I just chuckled. I knew that anything trading at a P/E of 600 with no fundamentals was going to get hammered at some point in time. I think we all saw what happened to the markets from 2000-2002. Ouch!.
I have no problems with people trading on the Net, but for serious money, you may want to consult a professional with experience in both good and bad markets. The guidance of a full-time investment professional may increase your profit potential and reduce your risks.
So there you have it, sage advice indirectly from the Oracle. As for the sensible car, I became a proud new grandmother on Wednesday to Miss Hailey Alana Shirley, so a stationwagon may indeed be in my future. You can contact me at 841-4277. The Oracle did not leave me a number.
• Carol Perry, a Northern Nevada resident since 1983, represents the firm of Wachovia Securities in Carson City.