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Are You An Active Investor?
By jmh | June 23, 2006
With the wide spread demise of traditional pension plans and the questionable future our Social Security System faces, many see the need to invest their dollars for greater returns. Let’s face it our social security system was planned as that: a system providing basic economic security and not a full retirement plan for all citizens. But, that’s another story all together (so, let me get back on track!).
Many people, by default are more or less passive investors. By that I mean that they choose from some mutual funds (very commonly) their 401K invests in. Maybe, they do some extra investing outside of work and they pick some type of mutual fund on their own. And that’s where it stops!
Many people, partially because they have been told so, leave their investments alone without paying much attention to them. After all, we are long term investors, right? And a mutual fund or stock may go down in value but it will also come back up – given enough time.
Well, that’s fine and dandy, except, that I am not aware of any universal law that guarantees exactly that. During the dramatic market decline that started in 2000, many experienced first hand that stocks do drop like a rock and not regain their value. And what about the Dow Jones Industrial Average (DJIA) losing 10% of its value over the past two months! Did you know? Did you pay attention?
Hence, it seems prudent to pay attention to our investments. At minimum, we want to know to two things: how are our specific stocks/mutual funds, etc performing and what is the overall market doing. You can find information about your specific investments via your online account and/or through the monthly/quarterly reports mutual fund companies send out. Track your investment, keep an eye on its performance and make adjustments if need be.
Getting started with tracking the performance of the overall market, the broad indexes, can be done at Bigcharts. The three broad indexes to look at include the Dow Jones Industrial Average (symbol DJIA), the S & P 500 Index (symbol SPX) and the NASDAQ Composite Index (symbol COMP).
Stop! No, you do not have to become an expert or guru nor do you have to become excessively concerned with the markets. Simply track performance. You do not have to be a technical analyst to tell if the specific market is going up, is declining or is moving sideways (when is doubt, ask your kid!). However, make sure that you include adequate time in your query to see a real trend and not a short term move (i.e. look at 2 years of data verses the last month). Simply watch the overall trend (look at the picture) and track prices.
Why is the overall market important? Most stocks (and by default mutual funds) are affected by the overall trend of the market. That means a fantastic stock in all likeliness will decline along with a falling market and a weak stock will be pulled to higher grounds by an up trending market.
Paying attention to the performance of your individual investments and the market in general will make you into a somewhat more active investor. At least, it is a start. Until next time …
©2006 Johanna Hofmann, MBA
Tag: My Investments
Topics: Investments |
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