Nothing is better than fireworks on the 4th of July! Out of seemingly nowhere, bright colors explode in the sky, dazzling everyone who sees them. Then, almost instantly, they are gone. Some investments behave a lot like fireworks. Companies or concepts capture everyone’s attention, and investors are exuberant. They rush to invest only to have the vivid displays disappear in smoke through poor business decisions or changes in consumers’ tastes. You can take some steps to help your investments last longer than a hot summer night.
- Don’t chase the latest investing trends. Usually by the time you notice it, the trend is yesterday’s news to institutional portfolio managers. Additionally, there may be risks not yet obvious to most investors.
- Don’t rush into the latest technology. Do you remember Commodore computers? Wait and determine who the industry leaders will be in new technology. Those companies are more likely to perform better over a longer period of time.
- Don’t feel like you need to be invested in single stocks. An index fund gives you great diversification without high fees.
- Don’t hold onto a dud for too long. If an investment was a mistake, don’t add more money to lower your cost basis. Although dollar cost averaging is usually great, a single stock that isn’t performing well might want to be sold.
Long-term investing success rarely involves flashy, bright explosions. Create a diversified portfolio that matches your risk tolerance level. Watch your fees. Then, enjoy a family night at real fireworks knowing your money is working to help you meet your financial goals.