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Question:


How can I invest like a pro? Give me some tried and true tips.
-BasilFrye


Answer:


Considering that most professional investors fail to beat the markets that they specialize in, maybe investing like a pro isn’t something to aim for. One of the reasons that most portfolio managers can’t beat the market is that they’re susceptible to the same emotions as everyone else. They get greedy and euphoric after markets have risen a lot, so they buy when it’s often a good time to sell, and they get panicky after a big decline and sell near the bottom. Also, the demands of their jobs and the flow of money into and out of their funds by their very human investors mean that they often are not in a position to take advantage of the handful of simple guidelines that can help investors succeed. These include investing for the long term and not getting caught up in the daily, weekly or monthly swings that markets endure – the sorts of events that cause people to buy high and sell low.

It’s also helpful to diversify among different types of assets. The two main ones are stocks and bonds, but a well diversified portfolio also holds gold and other commodities, real estate and sometimes even more exotic fare. Diversification helps improve long-term returns with lower volatility because different types of assets tend to be driven up and down by different factors, so when stocks are rising, for instance, bonds are often on the way down, smoothing out overall performance. Another good habit is to dollar-cost average, which means investing the same dollar amount periodically. This helps improve results by having you buy more of something when the price is low. Say a mutual fund is selling at $10 a share. If you invest $1,000, you get 100 shares. If the price then falls to $9 when your next purchase is due, the $1,000 will buy a bit over 111 shares. Dollar-cost averaging forces you to buy low and sell high.

-Conrad de Aenlle



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