You’ve probably seen plenty of magazine pictures of affluent-looking people who have “made it big’’ in investing.
While these photos grab our attention, the articles can be more illuminating.
If they’re honest, they will usually reveal that those investors earned their prosperity by diligently following a few simple steps.
What are these secrets to success? Here are three to consider:
• Create a plan — If you don’t have an investment plan, you can make many costly mistakes.
For example, you may be tempted to chase after “hot’’ stocks only to discover that by the time you buy them, they are already cooling off.
Or, you may randomly invest in a stock here, a bond there, a CD the next month. But you won’t increase your chances of success by adding more investments.
You need to create an investment plan that’s based on risk tolerance, specific goals and time horizon.
Putting together a diversified array of high-quality stocks, bonds and other vehicles, you are able to make steady progress toward your objectives.
You can draw up this type of plan by yourself or you can work with a financial professional.
• Keep investment performance in perspective — Many people make mistakes when it comes to tracking their investments.
They either forget about what they own, or they zealously follow every single price movement. Both of these moves can be troublesome.
If you pay no attention to what you’ve invested in, you could someday find that your investments are no longer suitable for your needs.
On the other hand, if you are constantly fretting about price movements, you’ll be tempted to make hasty buy and sell decisions that work against you.
Instead of following either of these paths, look for a middle ground.
Be aware of how your investments are performing, but always keep this performance in perspective. A stock can have a bad month, or even a bad year, and still have a promising future.
Review your portfolio at least once a year. Evaluate how your investments have done in the recent past and what they may do in the coming months and years.
Try to determine if your holdings are still doing what you want them to do.
• Invest for the long term — It sounds easy, but it’s not. To invest for the long term, you need patience, perseverance and the ability to focus on events that won’t occur for several decades.
That’s not to say you won’t have short-term goals, but there are investments that are well-suited for these needs.
Overall, you will find that most of your portfolio will be devoted to achieving your long-term objectives, a comfortable retirement, college for your kids and vacations.
So, you must build and maintain the mix of investments that have the “staying power’’ you need.
These are the three moves you’ll need to make to be a successful investor.
By following these suggestions, you may never land on a magazine cover, but you should be pleased with the results.
Ross Hage is a financial adviser with Edward Jones. For more information, call (928) 468-2281.