MANAGING YOUR INVESTMENTS - THE VALUE OF COMMON SENSE

After more than 20 years of investment advising, I have seen many personal finance, tax, and investment nightmares. Many of the causes are understandable. Most Americans were never educated in investing principles and feel overwhelmed by the task of managing their money. When my own spouse went through medical school and subsequent residency training, there was not a word of instruction on financial matters provided to her or her fellow students to help plan for their future careers.

I believe that today it is more important than ever for people both to take responsibility for setting and meeting saving and investment goals and to apply simple common sense to the process. The older I get, the more I come to realize that our parents' generation was right about saving and living within one's means.

In that vein, I have compiled a list of what I believe are ten critically important nuggets of "Saving and Investing Wisdom:"

1. Save early and save often. Find the money to save even if you have to give up your daily Starbucks habit. In my 20s, I wrongly believed that I did not earn enough to save or invest. I used to think: How could I possibly get anywhere saving $100 or $200 a month? It would take me years to save up enough to even buy a house! As a result, I missed the opportunities to invest in the astronomical growth of our economy from 1985-2000.
2. Never underestimate the power of compounding and the time value of money. If you are getting a late start, you can still make progress by forcing yourself to max out your retirement plan contributions. Find a way to do it.
3. Little money kills big money. This was the mantra of the mother of one of my best friends. Spending a few dollars here and there on small items like eating out and/or coffee add up to a large amount every month and can torpedo your savings goals.
4. Diversify, diversify, diversify. I cannot say it enough. Once you start investing, diversify. For many moderate risk persons, subtracting your age from 100 will give you an idea of how much to have as a percentage in the stock market. A typical investment portfolio should include: stocks, bonds, real estate, and some exposure to commodities, such as oil, metals, and timber. Find an objective independent advisor to help you. It may be the best money you ever spend.
5. Do not pick individual stocks. Despite all the tips from friends and family, there is a mountain of research that shows that you cannot "beat the market." Investing in index funds is a smart alternative for a diversified portfolio that should serve you well over the years. Talk to your investment advisor about the right mix to meet your goals.
6. Rebalance at least once a year. By reviewing your investments regularly, and sticking to a diversification plan, also called an asset allocation plan, you will automatically be selling at the highs and buying at the lows. For example, if your stock investments do great, and the percentage of stocks to the total of your investments becomes too high for your plan, you would sell enough to trim back to your target percentage and invest those gains in other asset classes. This is again something that a good investment advisor can guide you through.
7. Don't watch the market, although it is a tempting past time! The market adjusts constantly, and watching it move during the day often causes us to either bailout when we get scared or go overboard on stocks in good times. It is hard to resist the tips on CNBC, but consider this: If we were to buy every stock recommended, our trading costs would soar and our overall investment return would fall. It may be great television, but it does not take the place of personalized investment planning.
8. Have patience and keep investing. Trying to time the market by jumping in and out is a recipe for long-term failure.
9. Finally, if you can do it, consider setting up an IRA for your children when they begin working, and fund it to the maximum level allowable until they are in their late 20s. During the early years of their work life, they often cannot afford to save for themselves. By giving them this gift, you not only spur their interest in investing, you help them reap the benefits of time and compounding, which can give them enormous sums of money decades into the future when it is time for their retirement. In addition, it may be possible to utilize a Roth IRA in these circumstances so that the earnings are generally not subject to tax.
10. Ask questions of your investment advisor. We are here to help.
    Mr. Pugliese may be reached at spugliese@rubino.com or 301.564.3636. For more information about Rubino & McGeehin, please visit http://www.rubino.com/.