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:
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.
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.
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Courtesy Edward Jones Investments – Julie K. Tauriainen, AAMS® Financial Advisor – Heidi Bohn, Branch Office Administrator – 9055 Soquel Dr. Suite D Aptos. Tel # 831-662-4565, Email: Heidi.Bohn@edwardjones.com