FINANCIAL FOCUS: Celebrate Earth Day by improving your investment environment

Published: Monday, April 21, 2014 at 08:32 AM.

It takes patience to follow the buy-and-hold strategy favored by Mr. Buffett — and it also requires the discipline necessary to keep investing through the inevitable downturns you will encounter. But over the long term, your perseverance may well be rewarded.

Avoid “toxic” investment strategies. Unfortunately, many human activities are bad for the environment. Similarly, some investment strategies are “toxic” for your prospects of success.

Consider the pursuit of “hot” stocks. They sound inviting, but by the time you hear about them, they may have lost their sizzle — and in any case, they might not be right for your needs.

Here’s another “poisonous” investment strategy: trying to “time” the market. If you’re always jumping in and out of the market, looking for “low” points to buy and “high” points to sell, you’ll probably be wrong most of the time — because nobody can accurately predict highs and lows.

Even more importantly, you may find yourself out of the market during the beginning of a rally, which is when the biggest gains tend to occur. 

Diversify your “species” of investments. The United Nations, drawing inspiration from Earth Day, has designated 2011–2020 as the United Nations Decade on Biodiversity. And, just as preserving the diversification of species is important for life on Earth, diversifying your investment portfolio is essential for its health.

By owning a variety of investments — stocks, bonds, government securities, certificates of deposit and so on — you can help protect yourself from downturns that primarily affect just one asset class. (Keep in mind, though, that while diversification can reduce the effects of volatility on your holdings, it can’t guarantee profits or protect against loss.)



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