I will not chase returns.
When your neighbor tells you about a stock that made him 120% last year -- ignore him! When a investing magazine lists the top 50 stocks or funds in the last three months -- ignore it! When you see or read an interview with the top investing manager or stock picker of the year -- ignore it! Academics have shown that there is no better way to lose money then jumping on the bandwagon too late. This is often called "Chasing returns" and is a surefire way to get burned. For more info, read an article I wrote titled " Chasing Returns."
I will NOT attempt to pick stocks or funds.
Trying to pick the next hot stock or fund should be for entertainment purposes only. People often enjoy choosing stocks because they like stories. My advice to those people is to go see a movie. Your life savings should not ride on something as predictable as the lotto.
I will invest with a purpose.
When looking at stocks or more preferably mutual funds to invest in, make sure it fits into your portfolio. When I say "fits into your portfolio" I am referring to risk levels and allocation. Invest what you are comfortable investing in and make sure your portfolio isn't lopsided. If you have 80% of your money in large cap growth funds, you should be taking a serious look at value funds and small cap funds. Don't forget international funds either.
I will control my investment expenses.
If you are with a broker, avoid paying commissions. If you are investing in a fund, avoid high expense ratios and definitely avoid 12b-1 fees. I realize you might like your broker as a person and their sales commissions help their children go to college, but whose kids would you rather go to college, theirs or yours?
I will continue to invest.
Continue to maximize your 401(k) plan. Employer matching is the best investment you can ever make. For example, if your employer matches 50 cents on the dollar, you just made 50%! Don't let a bear markets discourage you -- investing during a bear market means you are getting cheaper prices. If you understand the power of compounding interest, you know to invest early and invest often.
I will continue to educate myself.
By reading this article and visiting this site, you have already made one step in the right direction. Investing can be complicated and full of jargon. Reading about others mistakes, rather than committing them yourself, is a much more profitable way to invest. This site is dedicated to providing unbiased mutual fund and investment advice and the tips that I share are meant to multiply and secure your hard-earned money. Be sure to read other articles and sign up for my free newsletter.
Best wishes for a profitable 2007!
