Investing money is not of great interest to many people unless, that is, they make money in the process. Consistency is the key to investing money successfully, and in order to achieve this you must avoid major investing mistakes. Plus, you’ll need an investment strategy.
In 2008 few investors had a good year investing. The truth is that even if you had a sound investment strategy, 2008 was a bear. You will not make money every year investing money in securities like stocks, bonds and mutual funds; or in real estate, either. But you can greatly improve your consistency by avoiding major investing mistakes.
If you can avoid ever taking a big loss, odds are that you will make money as an investor. The year 2008 (and into early 2009) was probably the toughest time to make money in most of our lifetimes. So, don’t get discouraged. Let’s look at why it was so rough out there, and how we can avoid making the investing mistakes many folks made.
Big losses were taken in both the stock market and in real estate. At the same time, safe investments like bank accounts and money market funds were paying peanuts. Since interest rates were near historical lows many people were attracted to good old stocks and real estate to earn higher returns.
Many of them knew not what they were doing and had invested more in these two areas than they normally would have. Let’s start with real estate. For several years leading up to late 2007, real estate values had been soaring. Real estate stocks and funds that invest money in them had performed well and had been consistently good performers. In other words, real estate was overvalued and the market was ripe for a correction … any bad news could send prices tumbling.
The stock market had been up since late 2002, without a major correction. Most investors had once again learned to be comfortable investing money in stocks. When really bad economic and financial news hits, stocks take a dive. In 2008 the bad news was the worst since the great depression. Stocks tumbled and fell until early March of 2009.
There’s a lesson to be learned here. A sound investment strategy requires that you invest money in all 4 asset classes: stocks, bonds, alternative investments and safe interest-paying investments. Do not over-invest in stocks or other growth investments (including real estate) and do not ignore safe investments like CDs just because interest rates are low.
To make money consistently you need to diversify and invest money across the asset classes. In this way you won’t take major losses when times are bad. For example, investing money in bonds and gold would have helped offset other losses in 2008; and money in the bank is safe.
A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.
Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com
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