Guidelines for smart investing

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Keep investing guidelines in mind

Key Points

Buy low and sell high

Selling an investment for more than you paid is how you make a profit. The idea is simple, but it’s a challenge to do it consistently. The historical trend of a stock’s price may help indicate what might happen in the future, but there are no guarantees. Try to avoid buying a stock at its high point. Look for opportunities to buy stocks with good potential at low prices after a major market downturn.

Diversify

Divide your money among different types of investments to reduce your risk. Have a balance of different types of investments in a variety of companies and industries.

Buy and hold

Some investors overreact to news items they read or “hot stock tips.” They start trading all the time, buying and selling investments very quickly in an attempt to make quick gains. These strategies rarely work and can put you in serious danger of losing your money. Stay objective and focus on the long term. Be an investor, not a gambler. Avoid the impulse to react to sudden changes in the market or to buy the latest hot stock.

Decide when to sell

One of the keys to successful investing is deciding when to sell investments that are doing poorly as well as those that have increased in value. To cut your potential losses and maximize your gains, consider setting strict guidelines for yourself regarding the specific price, either high or low, at which you will sell. Review your portfolio on a regular basis to see which investments have significantly increased in value, which have dropped, and whether the time to sell is now.

Pay attention to costs

Taxes, fees, inflation, and other costs can all affect your return on an investment. It’s wise to consult with an investment professional and your tax adviser regarding the best way to minimize these costs.

Keep track

Whether you invest online or through a professional, it’s important to keep track of your investments. A fast and convenient way is through online account access offered by many investment brokerage companies. This service allows you to view balance and transaction information, transfer money, contact customer service, and more. It’s usually provided for free.

Finally, stick with your plan

Periodically review your investing plan so that you don’t lose sight of your goals. Adjust your portfolio as needed to maintain the mix of investments you want at your target level of risk.

To learn about tax consequences when you buy or sell investments, a strategy called dollar cost averaging, and many other aspects of investing, click on Library.
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