Unlucky Money Moves

15Apr12

Investing too conservatively
Many retirees invest much more conservatively when they finish working. That overlooks the reality that retirement can last for decades. It’s essential to continue to seek long-term growth by investing in stocks and riskier assets than just CDs and bonds. The aim is to protect your savings against inflation and minimixe the risk of running out of money.

Assuming a low-priced stock is cheap
Don’t put too much emphasis on a stock’s price per share. Too often investors view Google as expensive because it costs $651 a share, and Hewlett-Packard as a bargain at $25. The key is a stock’s price-to-earnings ratio. The lower the P/E, the less you’re paying for every dollor of a company’s profits. Keep in mind that management has ways to influence a stock’s price, such as through a stock split, that don’t reflect a change in the underlying value of the company.

Letting emotions take over

Making emotional short-term decisions with long-term money can be disastrous. Investors frequently buy as they get swept up in the buzz surrounding a stock, and sell out of fear when it’s dropping. You can ask those who bailed out of the stock market in late 2008 and stayed on the sidelines too long as the market doubled in value. Investors should make a plan and stick to it.

Delaying saving

Young people are quick to put off saving for retirement. Although it may be challenging to save, they’re missing out on the power of compounding interest. Saving $3,000 a year starting at age 25 will produce a nest egg of more than $777,000 by age 65. That’s more than five times the $137,000 result generated if you start at age 45. The caulculations by Principal Financial assume an 8 percent annual return on investments.

Source: The Oregonian, Friday, April 13, 2012
Dave Carpenter, Jenni Sohn – AP

Learn more about Ron Sloy.

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