What kind of investor are you?

November 05, 1999
Financial Focus
By Mike Kelley Not that long ago, investment strategies were pretty simple. As recently as the 1970s, many people took the fixed-income approach. They put their money in passbooks and certificates of deposit, and made their big gains in the appreciation of their homes.Obviously, things have changed considerably since then.Today, "speculators" are attracting all the attention. As they chase after "hot" stocks, they frequently ignore fundamentals, such as a company's profits. Instead, they will try to "time the market" by buying a fast-rising stock and holding on to it only until they think it's about ready to drop. The most extreme examples of this type of mind-set are the so-called "day traders," whose idea of long-term investing may be an hour or two.Of course, there still are "passbook" investors around, people who fear the markets and are reluctant to take any chances with their money.It's clear that neither the speculators nor the passbook savers have all the answers. People who try to time the market will eventually get burned - repeatedly. Conversely, those investors who stick with fixed-rate vehicles will not see much growth in their money. Furthermore, fixed-income investments carry with them a different type of risk - the risk of losing purchasing power to inflation.
If you're either a passbook saver or a speculator, then you can benefit by expanding your horizons. If you're risk-averse, consider investing in a diversified portfolio of high-quality stocks - and hold them for the long term. Established companies may not soar like today's hot Internet stocks, but they generally don't crash and burn, either. And they will certainly provide you with a higher return than a portfolio composed solely of bonds, CDs, money-market accounts and Treasury bills. If you have trouble shaking your fear if price volatility, take comfort in this fact: Studies have shown that the longer you hold a portfolio of stocks, the less chance you have of ever losing any money.On the other hand, if you are more of a speculator, and you never met a risk you didn't like, you could still pick up a thing or two from the passbook savers. Remember, many of yesterday's "hot" stocks are today's unhappy memories. You, too, can benefit from building a diversified portfolio - even one that contains decidedly "unglamorous" investments such as large-company stocks and bonds.The passbook saver and the speculator each represent an important goal - security and growth. And we all need elements of both in our investment portfolios. The challenge is to go beyond our natural preferences and see what we can learn from those people walking on the "other side of the street."

Site Search



Call 805 525 1890 to receive the entire paper early. $50.00 for one year.