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Business // Thinking Smart
David S. Chang

Avoid These Investment Tips!

In the financial industry, my goal is to see people reach their financial goals. This involves the discipline to stick to a long-term financial plan, a diversified portfolio and to pick solid investment products. But as simple as it sounds, there are quite a few things that can derail any plan. It is common for some clients to come with “hot investment tips” they heard from friends or family. They may have the best intentions in doing so, but in many cases do more to hurt than help people reach their goals.

There is nothing wrong with getting tips, being educated and learning more about what people are doing, but here are four common “tips” that you should avoid!

1) “My buddy recommended this stock (or investment product) and it is going to go through the roof. I need to invest in it now or else I will miss the huge market gains!” This is the most common tip I hear. Unfortunately, out of the 100 stock tips I have heard, almost all of them ended up losing their investment. Nothing wrong with taking the tip, but do your research and don’t make an investment decision based on emotion. Picking investment products should be part of a disciplined process that fits your goals and risk tolerance.

2) “The market will collapse very soon” or “The market is going to come back very soon.” Many people believe they can time the stock market. Unfortunately, there is no way anyone can know when the market will crash or recover. If that was possible, Wall Street analysts (who are paid handsomely to predict the market) would have been able to prevent the 2008 crash and the problems afterward. According to studies, 80 percent of active fund managers don’t beat regular index funds. Since professionals can’t time the market, the odds are stacked even more heavily against regular investors. Day trading is a highly risky investment strategy. Staying disciplined and invested during market fluctuations is crucial to long-term growth.

3) “You should invest your money in different banks and different investment firms to be diversified.” Being diversified and not putting all your eggs in one basket is important, but this refers to investment products, not where investments are located. With the exception of FDIC insured products, it is better to have all of your investments under one roof. If you have different financial advisers, the strategy they set could offset and work against each other. Also it is easier to manage your investments with one statement, one online login, and one place to call.

4) “This investment is guaranteed to make you a profit!” This is the most dangerous one. If someone uses the word guarantee, it can be a huge red flag. There are some investments that are insured to guarantee principle such as annuities and investments backed by collateral, but no one can guarantee profit for market-based investments. Past performance does not indicate future performance – just because a stock did well last year, doesn’t mean it will do well this year.

Bottom line, no one should be responsible for your money but you.

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