When investing, use care, seek balance

by Caiti Currey - Nov. 24, 2011 06:43 PM
Special for The Republic

People who are new to financial investing often put themselves at a high risk for big losses. But two financial planners say it's critical to do some homework -- or get professional help -- before diving headfirst into turbulent waters.

"There are opportunities out there, but few and far between," said certified financial planner Jacob Gold, president of Jacob Gold and Associates Inc. of Scottsdale.

Even with the current economic times, he doesn't mean to forgo investing. Gold just means it is important to invest more wisely.

He recommends that new investors enter the market with a long-term objective -- a goal to accomplish over two or more years. Anything less than that is inefficient, he said.

In addition, Gold said new investors should "err on the side of caution." The No. 1 mistake he sees with beginning investors is entering too aggressively.

People tend to go too heavy and strong right off the bat, he said, and in doing so are more susceptible to getting frustrated and reaching their breaking point early on.

Robert Jackson, certified financial planner and president of Scottsdale-based Jackson Financial Advisors Inc., agreed with Gold. Being too aggressive early on "may have irreversible effects," he said.

But how cautious new investors are in their approach may depend on their time horizon.

"If you are overly cautious in your early investing years, you may lose out over time," Jackson said.

For example, if retirement is years away, an investor can take more risks. However, if someone is planning for retirement in the near future, it is best to play things safe, Jackson said.

There is no manual for investing, and the outcome is unpredictable. Both financial planners emphasize that taking appropriate measures to handle your assets responsibly can help minimize your risk.

It is not uncommon for someone to begin investing for the wrong reasons, Gold said; often people do so to make a quick buck.

In the 1990s, this may have been easier to achieve because it was a prosperous economic climate and the stock market was making gains.

It was typical then for average yearly returns to be in the double digits. But times have changed, and in today's market if people are managing and diversifying their assets well, "they are lucky to see between 5 and 6 percent (growth)," Gold said.

For someone starting out, the best way to diversify assets in order to see maximum profit is by investing in mutual funds, Gold said.

"If someone has three or four different mutual funds, they would be better diversifying their money than buying a single stock in corporations like Google or Apple," Gold says.

Diversifying your assets also makes it easier to avoid ripple effects from situations like the Enron scandal a few years back, Jackson said. When that company collapsed, investors who had a lot of stock in Enron lost nearly everything.

Jackson said that it is important to have no more than 10 to 20 percent of your assets in one bucket. It is not a bad thing to invest where you are most familiar, he said, but don't put all of your eggs in one basket.

Gold also said that if your company gives you the opportunity to buy its stock at a discounted rate, do so, but don't put all of your assets into the company.

Today, high-flying gold and precious metals also are a hot topic among people looking to invest.

According to Jackson, it is important to look at commodities in the same way and not invest more than 10 to 20 percent of your assets.

Another important thing to consider if you are a first-time investor is whether you are in a position to do so.

Gold said two important things to have when going into investing are no outstanding credit-card debt and cash in a savings account to cover three to six months of living expenses.

"You don't want to try and get 5 percent on the market when you are paying 15 percent interest on a credit card," Gold said.

Source: http://www.azcentral.com/business/articles/2011/11/23/20111123when-investing-use-care-seek-balance.html

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