Rules of the investment road
There’s always uncertainty in investing. One particular problem today is that safe investments pay very low returns, and yet investments like stocks that have done better can always retreat. N.C. State University economist Mike Walden offers five simple rules for the average investor.
“I’ve been doing this now for over 30 years, and there’s always, always uncertainty about investing. People have questions. I think that’s why you have some basic fundamental rules that guide you in investing. That’s very helpful. And I have five.
“First one is that risk and rate of return are always going to move together. There is no such thing … as a risk-free investment that’s going to pay high returns. So to get a higher rate of return you’re going to have to take some more risks.
“Secondly, learn before you leap. And what I mean by that (is) really learn about an investment. Have someone explain it to you. If some investment advisor has a fancy investment for you but they can’t explain how it works, walk away. It’s not that hard. You should be able to understand the basics of any investment.
“Thirdly, understand the fees. If you do use an investment advisor or a mutual fund, there are going to be some fees somewhere. Don’t be surprised by them. Find out how you pay for that investment advice.
“Fourthly, diversify. This is one of the oldest rules in … investing. Put your investment eggs in many baskets. That’s the way to guard yourself about ups in one area versus downs in another.
“And then finally, timing your investments is extremely difficult. Of course people want to buy low, sell high. Even the experts can’t do that consistently.”
Category: Economic Perspective