Investing For The Long Haul - personal finance

Black Enterprise, Feb, 2000 by Derek T. Dingle

Even if you employ the services of an advisor, you should have a working knowledge of the financial markets. "You need to learn everything that you can about the investment environment as well as be sure about your own financial goals," says Gabriele Smith, associate vice president of investments with Morgan Stanley Dean Witter in White Plains, New York. "When investors come to me, I tell them that they should know how much money they have to invest, the amount of time they need to reach their investment goal and how much risk they can tolerate."

The key, says Smith, is time and patience. Don't think that you are going to make a mint on the latest Internet IPO (initial public offering). It will take a methodical investment process to reach your goal--and keep losses to a minimum. To be a proactive and informed investor, do the following:

* Learn the basics. Use every tool to demystify stocks, bonds and other investments. Take courses on investing at your local college and read the financial pages daily. One option: using BE as a resource by reading the monthly Moneywise section, visiting the Investing page of blackenterprise.com or getting a copy of the BE Wealth-Building Kit (which includes a glossary of commonly used investment terms).

* Identify a specific investment strategy. Such factors as goals, age, time and risk will determine where you park your money. For instance, the closer you get to retirement, the more likely you are to be conservative and income-focused. If you lose money, you'll have less [principal for living expenses and less time to recover. The longer you have until retirement, the more aggressive you want to be because you have time to wait out market cycles.

So what should you do? Structure your portfolio--your mix of assets--based on your goals and time horizon. For example, high-priority objectives should be placed in less risky investments such as Treasury notes, Treasury bills or blue-chip stock and bond mutual funds. Remember that lower risk translates into lower returns and, therefore, it will take more time to reach your objective. With less immediate goals, you can assume more risk--that is, if you've given yourself enough time to realize your objectives and recover from dips in the market.

* Consult experts when necessary. With the advent of online brokerages, many experts advocate "do-it-yourself investing." However, make sure you have the time to make the right moves. And, by all means, don't start off day-trading. That would be like getting behind the wheel of a Formula One race car with a learner's permit.

Investment advisors and brokers can be helpful at times. When dealing with a broker, however, write down your financial goals and have your broker sign a copy of that document. Keep an eye on your monthly brokerage statement and inquire about all fees.

* Determine how you want to allocate your assets. A 1991 study by researchers Gary Brinson, Brian Singer and Gilbert Beebower found that the determining factor in investing came down to asset allocation. In fact, the investment mix accounted for 91.5% of the difference in the returns of the investors they surveyed.