As we head into 2017 and begin to think about how exciting it is to get our money off the sidelines and into the markets, I would caution you to not let excitement take control of your common sense. So, I offer the following guidelines:
1) Control your enthusiasm. Don’t immediately jump into the markets with every nickel that you have. Maintain a small percentage (10 to 20 percent) on the sidelines. Once you have determined an investment strategy, dollar-cost-average it into the market over the next six to eight months.
2) Consider your strategy as a long-term process. Long-term investing is still eight to 10 years. When people become concerned about an investment that is going down after a year, my immediate reaction is: “What part of long-term investing don’t you understand?” Long-term means you can’t be concerned with the day-to-day or year-to-year movements of your portfolio. Give a long-term strategy a chance to work to your benefit. I must admit, I’m a bit more committed to such a strategy now that it looks like we will see sound fiscal policies coming out of Washington, D.C., along with a pro-growth, pro-business agenda.
3) When it comes to investing, remember these factors:
· Banks. Banks are used for checking accounts, savings accounts, personal loans and maybe a mortgage or car loan. They should not be in the business of selling insurance or investments, or opening an investment account and sharing your information with some brokerage or insurance company that may seem as though it’s part of the bank. Banks are for banking.
· Insurance companies. Insurance companies are designed so that you can purchase home, health, car and life insurance policies, and maybe some annuity products. Insurance companies provide insurance services. If you want banking services or investment services, please go to the appropriate firm.
· Brokerage firms. Brokerage firms are designed to help people with their investment strategies. They can help you sell or buy individual stocks, individual bonds or mutual funds.
For a fee, many will help you manage these. But, again, once you have designed your strategy, you’re in it for the long term and there should be little management involved. If you need a checking account, savings account or insurance products, please go to those companies that are best suited to help you with that.
4) Don’t engage in the most common mistake that investors make. Don’t make decisions for managing your money based on the latest news. And don’t sell on bad news and buy on good news. That means you’re selling low and buying high, which is not a good formula for a successful portfolio. One of the hardest things is to resist selling when it appears as though the world is falling down around you. Remember, you’re in it for the long haul, and if you still have a long-term time horizon, then you need to stay put. There may always be a time to sell and make some profit; that is seldom a bad idea. But, generally speaking, if you have a strategy that you believe in, understand and are confident in, then stay put.
5) Many people believe that if they’ve worked in a particular business sector, they know it very well—and in some cases, that may be true. But when you begin to try to time the market—even in those sectors that you think you know well—it is not likely to lead to success. For the average person, trying to time the market is not a good idea. There are few wealthy market-timers on Wall Street. Whenever possible, it’s wise to dollar-cost-average into particular investments, and dollar-cost-average out (unless you are profitable).
6) I know this is counter to what most people think, but I don’t believe in trying to manage your portfolio to save a few dollars in taxes. In other words, don’t hang onto a stock that is up 30 to 40 percent because you don’t want to pay the 15 percent capital gains tax. You have likely heard people say that a loss in a stock is only on paper and it will come back up. Keep in mind that profit is also only on paper until you actually take it and put it in your pocket. Most people I know are investing because they are trying to make money, so don’t get caught up in worrying about paying a 15 percent capital gains tax. If you do, you’re likely to watch that profit erode away. Also, remember that if it’s an IRA or 401(k) account, there are no capital gains to worry about—all the more reason you should take your profit.
7) Finally, think about what you are investing in; the vast majority of the mutual funds may consist of companies that do not align with your morals and Judeo-Christian values. Are you taking ownership in the very things that you despise? The same is true for individual stocks; think about what these companies are engaged in. Yes, I understand you’ve been told that the company will do very well, but is it worth supporting things that are in direct conflict with your moral stance? I would suggest that you go to www.timothyplan.com or call them; they are happy to screen—free of charge—any mutual fund you are considering.
One of the challenges all of us will have to deal with in 2017 is our emotions. After all, many of us have been earning just a little bit of interest with our money that has been stuck on the sidelines for a very long time. Or, maybe we feel as though we have to make up for lost ground and get into the market very quickly. Take a deep breath and relax. If you’ve been out a long time, it may take a long time to get back in, so don’t allow your enthusiasm to get in the way of common sense.
Another concern is that many financial advisers will fight for your business, make unrealistic promises and make every effort to try to lure you to their way of doing business. Take your time and understand what they are asking you to do. If you can’t fully explain the investment you are about to make to your neighbor or friend, then you don’t know it well enough to be putting your hard-earned money into it. It is the investment adviser’s responsibility to explain exactly what you are about to do and why he or she thinks it’s the best move for you.
I am excited about finally having some enthusiasm about a growing economy that will impact the markets in a positive way. I do hope that 2017 will be the beginning of many years of stability for the economy and rational behavior impacting the markets.
May you all have a blessed and prosperous 2017 as we continue to pray God’s blessings upon our land.