Advice for All Investors

Here’s an easy New Year’s resolution: You will invest wisely in 1991, no matter how many mistakes you’ve made before.

With all of the uncertainties facing financial markets--the recession, the Mideast and the debt spiral, to name a few--it may not be easy to make money over the short run. In fact, it may be nearly impossible. So a smarter tactic is to improve your chances of long-term success, because that’s what really matters.

Here, a few suggestions for investors and savers of every stripe:

* Never buy an investment until you’ve also decided when you’ll sell it. Sound contrary? It isn’t. The classic mistake most investors make is that they fail to set goals. That’s like starting on a trip without the foggiest idea where you’re going. Chances are, you’ll just end up lost. Before you buy a stock or bond investment, including mutual funds, you must answer these questions: How long am I willing to hold this? What kind of return do I expect? How much am I willing to lose before I decide I’ve erred?

* Never buy an investment before you’ve looked at its history. Naturally, you’re attracted to an investment for its future promise, not for its past. But the past can tell you a lot. At the very least, you’ll understand what has shaped the investment--and what investors before you earned or lost.

For example, a bond mutual fund may look appealing to you because the yield is high. But what’s happened to the share price--the principal value--over the past 10 years? Did it fluctuate wildly? What was the average total return each year--in other words, the percentage return including both interest paid and change in principal? And was that return better than what a plain old one-year bank CD would have paid each year?

Likewise, with individual stocks, look back as far as you can. Either from the company’s annual report or from data services such as Value Line or Standard & Poor’s, track the stock price over time. You may be surprised at how steadily a stock has risen--or how badly it has performed.

* Never buy an investment over the phone. There’s a movement in the brokerage business to stop unsolicited telephone pitches, but it still goes on. If you get a call from a broker trying to sell you something, tell the caller you absolutely will not invest that way. Don’t be buffaloed.

In fact, you should turn the tables on the broker: Ask him or her if they’d be willing to sit down with you and do a complete review of your finances, tax situation, retirement plan and other matters. Is the broker certified as a financial planner? What would the firm charge for a complete financial review, without obligation? Never let yourself be pushed around by a salesperson. If the broker is a true professional, that person should put your needs first--beginning with a thorough review of what you own now and what you want to achieve in the 1990s. Accept nothing less.

* Divide and conquer: Diversify. Think of your money as a manure pile--and spread it around. That’s the best way to raise your investment crop yield over time while lowering your risk. If you’ve just got savings in the bank, spread it among CDs of different terms. If you have the wherewithal to invest in stocks and bonds, never allow one security to dominate your portfolio. Most mutual funds won’t let a single security compose more than 5% to 10% of their assets. That’s a good rule to lower your risk.

As 1991 begins, think about what you don’t own, but know you should. Maybe this is the year you should move 5% of your portfolio into an international stock mutual fund, for the long haul. If you’re trying to save for a child’s college education, this may be a good time to be looking at, say, three well-respected growth stock funds. If you need income, look into funds that buy corporate bonds of the highest quality.

And if you enjoy playing individual stocks, check out things in your own back yard. There are hundreds of Southland stocks that you can invest in. This is a great time to call the companies, get their annual reports and begin looking for stocks that will shine once the current economic slump ends.

* Involve your spouse in investment decisions. In many marriages, one spouse handles the investment portfolio, and the other often doesn’t have a clue. That’s the wrong way to go. Two heads are better than one. Plus, the less-knowledgeable spouse often will ask the basic questions that the more experienced spouse overlooks--questions that usually are extremely important, including the simple, “Why are we doing this?”

* Don’t buy all at once. If you like an investment for the long run, don’t rush. Buy it over a few months’ time, or even longer. If you “average in,” there’s far less chance you’ll be buying at the high price. “Averaging” your purchases may never be more important than this year, with all the risks--and also opportunities--inherent in the markets.

Briefly: Reminder to investors who will be making last-minute portfolio changes this week: Internal Revenue Service rules say that if you make a trade up through the last day of 1990, the gain or loss on the investment counts for the 1990 tax year, even if the trade settles in 1991. A few years ago, the IRS allowed investors to trade in the last five days of the year and choose later whether to apply the transaction to the old tax year or the new, since the trades would be settled in the new year (it generally takes five days to settle). But that choice has since been taken away.

10 BASICS FOR ’91

IDS Financial Services recommends these New Year’s resolutions:

1. Cut your debt.

2. Start emergency savings fund.

3. Review life insurance needs.

4. Invest in the stock market.

5. Get serious about retirement savings.

6. Get serious about college savings.

7. Cut your taxes.

8. Fix up your home.

9. Create an estate plan.

10. Look into disability insurance.