On April 22, we observe Earth Day. Like many people, you might participate in some activities to help the health of our planet. But you can also do some things to improve your personal investment environment.
In fact, you might want to follow a key environmental theme: reduce, reuse, recycle. How can these elements be applied to investing? Here are some ideas:
Reduce – You don’t want to waste time, effort and money on investment decisions that will ultimately not benefit you much, if at all. For example, if you are constantly buying and selling investments, you may be hurting yourself in a few different ways. First, by not holding investments for at least a year before selling them, you may have to pay taxes on short-term capital gains at a rate that’s probably going to be higher than the long-term rate, which would apply if you held the investments at least a year before selling. Second, by always buying and selling, you could pay more in trading costs. Third, some investments simply need to be held for the long term before they will show positive results. And finally, excessive buying and selling can make it hard for you to follow a consistent, long-term investment strategy. So if you do trade frequently, consider reducing your activity.
Reuse – You don’t have to look hard to find all sorts of investment techniques being promoted by someone. Many of these strategies have exotic-sounding names, such as “Dogs of the Dow” or “Range Trading.” These techniques may have some validity, but, unfortunately, some investors zigzag from one to another, hoping to eventually find that “sure ticket” to investment success. You need to develop, and reuse year after year, an investment strategy created just for you, based on your individual needs, goals, comfort with risk and investing time horizon. Of course, you may well need to adjust this strategy over time to reflect changes in your life — but “adjusting” isn’t the same as “abandoning.” Sticking with a long-term, personalized strategy is an effective – and less stressful – way of pursuing your financial objectives.
Recycle – When you put money in some investments, you don’t just make a one-time payment and then hope to eventually make a profit when you sell – you can actually “recycle” your investment earnings and put them to good use. To illustrate: If you invest in dividend-paying stocks, you can typically sign up for a dividend-reinvestment plan and, as the name suggests, reinvest the dividends back into the stock. This is an easy and efficient way to increase your share ownership – and increasing ownership in any investment can be an important ingredient for successful investing. You can recycle investment dollars in other ways, too. If you own bonds or other fixed-income vehicles that provide you with regular interest payments, you can place this money in a different investment – perhaps one that can help you fill any gaps that may exist in your portfolio.
Reduce, reuse, recycle – it’s a theme that has resonated in the environmental movement, and it can serve as a useful guideline for evaluating your investments.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor (member SIPC). Contact Stan at Stan.Russell@edwardjones.com.