Financial Tools & Tips

A wealth of knowledge and tools for financial security | wealth, column, financial - COLUMN - WaltonSun.com

Investors, despite good intentions, endanger their financial health with bad behavior. These tools can help you avoid investing pitfalls.

Realize CNBC is entertainment not advice. I love American Greed and other CNBC specials are top-notch, but keep the channel turned off during the day. Listen to NPR or watch ESPN instead.

Understand star money managers do not exist. Your only investment guru should be capitalism because there is a positive expected return on capital. Someone does not have to fail for you to succeed.

Recognize no one can consistently predict the future. Investing based on your opinion, my opinion or someone else?s is a fool?s errand. The only thing certain about the future is its uncertainty.

Keep a long-term perspective and make sure you have an appropriate investment horizon. If you need or want to work for 10 more years, then don?t worry too much about short-term market fluctuations.

You have to save adequately for retirement, generally 10 percent. Don?t let that number scare you. Plan to put new capital in the market regularly. According to a recent study, 70 percent of the market?s best days occur within two weeks of a worst day and 100 percent of the best days occurred within six months of a worst day. Forget market timing and anyone with a market timing strategy.

Rebalance your portfolio regularly. Buy more of what went down last year and sell winners. Over the last 12 months, we have encouraged and cajoled clients to reduce their emerging market allocation since developing market stocks have appreciated dramatically.

Diversification is the closest thing to a free lunch you will ever see. With full disclosure, there have been times in the past when diversification didn?t work so well. Over the last 10 years, the Russell 3000, a broad U.S. market index, has a negative return. By contrast, an investor who put every penny in Apple Computer saw their investment growth thirty-fold. With full disclosure, I have recommended clients sell Apple ? and AIG and buy a diversified mutual fund.

Make sure you take risks that are worth taking. Make sure your portfolio or other investments are appropriate for your goals and your timeframe. Generally speaking, older clients should be less aggressive with fewer stocks and other speculative investments like raw land.

Try to control your emotion when investing but realize it?s not an easy feat. Over the last 12 months, we have encouraged clients to reduce their stock allocations because stocks have grown more than bonds. Warren Buffett said, ?Be fearful when others are greedy and be greedy when others are fearful.? The Sage of Omaha rues his timidity during 2009.

Keep investment costs reasonable. The only investing facet you can control is your investment expenses. Yes, costs make a difference. Anyone who claims otherwise is wrong or does not put your interests first. The core of your investment portfolio, if not the whole shebang, should be low-cost index funds or ETFs.

Failure to understand risk and return are inexorably linked costs investors dearly. A local pension board recommended (4-1 vote) changing their investment policy to include commercial real estate as an investment class. Time will tell if the decision was prudent or not, but one thing is certain the trust fund increased risk, I believe, rather substantially.

If you get married, stay married. Divorce costs a lot, emotionally and financially.

Buz Livingston is a certified financial planner. He operates Livingston Financial Planning Inc. focusing on hourly financial planning and investment management. Contact him directly at 850-267-1068 or at buz@LivingstonFinancial.net.