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Don't seek advice from strangers
Investing is serious business. No one wants to lose hard-earned dollars.
Sorting through the multitude of choices, understanding the benefits and risks
of each type of investment, deciding which are right for you, and then
monitoring their performance _ these tasks are not to be taken lightly.
So why do people expect strangers to be able to provide personal
financial advice in five minutes or less?
A woman inherited about $25,000 and wanted to invest in mutual funds
for the long term. To get the answers to her questions, she called a man giving
advice on a radio talk show.
The woman asked three reasonable questions:
1. Was the market too high to invest all her money now?
2. Would it be more sensible to dollar cost average, investing her money
3. Should she put all the money in one fund or spread it among two
The man on the talk show had instant answers. He said the market
was not too high, and therefore the woman should not be afraid to invest all
her money now. The market could continue upward, making mutual fund
shares more expensive later, he said.
As for dollar cost averaging, the man didn't feel it was necessary. He said
this systematic form of investing serves two purposes: (1) It makes investors
feel more secure to dribble money into the market, and (2) It allows people
with small amounts of money to invest.
The man also advised the woman to put all the money in one fund _ but if
it made her feel better, she could divide the money among a couple of funds
This financial specialist knew nothing about the woman's age, years to
retirement, financial goals, income needs, or other investments. How did he
know these were the right answers for her?
His advice not to worry about the height of the market is generally
appropriate. No one can predict the best time to invest. More money has been lost
by investors who stayed out of the market fearing a downturn than by those
who went ahead and invested. Solid companies that earn money and pay
dividends have always proved to be good investments over the long term. Most
financial professionals agree, the best time to invest is when you have the money.
As for whether the woman should dollar cost average, that is a
personal decision. Dollar cost averaging may be appropriate if it would make her
feel more comfortable. The woman could avoid a commission with each
installment and obtain the discount usually allowed for lump sum deposits by
signing a letter of intent with the mutual fund.
Finally, suggesting the woman put all the money in one fund or find a
couple "she likes" is chancy. Unfortunately,
too many investors "like" the funds showing the biggest gains in recent
months. Typically, these funds also carry more risk.
Rather than picking a fund you "like," investigate a variety of funds
and choose only those that meet your financial objectives and risk parameters
before you even consider investing. Over the long term, mutual funds with a
consistent growth pattern often exceed riskier funds with erratic
performance. Allocating your money among several of these funds will minimize your
risks even further.
Again, these are general principles. There are as many ways to invest as
there are individual investors. Don't expect personal answers from the media.
They can only convey general guidelines that have proven successful over time.
For specific guidance, talk to a competent professional who takes the time to
understand your situation and goals.
CHRIS BRUNTZ is an investment representative for Edward Jones
financial services. His office is located at
111 1/2 E. North Bend Way, North Bend. He can be reached at (425) 831-5757.