Keep your investment objectives in mind
We live in challenging times. While the devastating recession is officially over, a high degree of uncertainty exists as unemployment hovers around 10 percent. A recurring question is how to invest in such a climate.
How you choose to invest is a personal decision that should be determined by your investment objective. Most readers’ objectives will involve one of three basic strategies.
Many people want to preserve the capital they invest. That is, they do not want to experience a decline in the value of their invested funds.
This is a conservative approach that is typically characteristic of older individuals, especially those close to, or in, retirement. Such a strategy involves little risk of loss of principal, but it may not keep pace with inflation and taxes. If this is your goal, look for safe investments such as money market funds, certificate of deposits or Treasury notes and bonds.
Others may want to invest to receive a steady stream of income. If this is what you want, look for preferred stocks, high-dividend common stocks, dividend-paying mutual funds or similar investments. Since the values of these investments will fluctuate, you will need to focus on dividends per share. With this objective, you should not expect a great deal of growth in your portfolio.
Many investors — particularly younger individuals willing to take more risks — seek growth of principal. This is primarily achieved through investment in growth stocks.
With this objective, you should invest for the long run and be able to withstand periodic decreases in the value of your portfolio. Stock selection is of utmost importance. Growth stocks are important to some people because, over time, they increase enough in value to keep ahead of inflation and taxes.
As you invest, keep these objectives in mind. But also remember they are not necessarily mutually exclusive. Some investors, usually the more sophisticated ones, combine the above to achieve multiple objectives.
Wayne Curtis, Ph.D., is on the board of directors of First United Security Bank. He may be reached by email at firstname.lastname@example.org.