2009 Press Releases

Five Investing Tips from Folio Investing

03/2009

VIENNA, Virginia – Despite the current turmoil in world financial markets, some long-term investors see troubled times and recessionary markets as an opportunity. They believe that many stocks and investments that have fallen sharply in recent months will rebound in time, and some highly valued, and formerly highly priced, stocks are now attractively priced.

The question becomes, how do you take advantage of these troubled times and invest wisely? In the financial markets, as elsewhere in life, there are no guarantees, but the following investing tips may help you to make better decisions when it comes to your long-term investing.

  1. Investment Diversification

    Diversification is essential to reducing your risk. Simply put, diversification means spreading your investments across stocks and other investments that are not likely to all move in the same direction, in the same amount, at the same time. Consider investing in different industrial sectors, differently sized companies, and among different types of investments. An advantage of being diversified is that losses in one area of your portfolio may be offset by better results elsewhere.

    By not diversifying your portfolio, you run the risk that losses in just a few companies could wind up hitting you hard. A truly diversified portfolio may still experience losses when the market declines, but they likely won’t be as extreme. Over time, a smartly diversified portfolio has a better chance of outperforming the market.

  2. Reduce Investment Costs

    When it comes to your investments, it is important to control your costs. Many mutual funds and ETFs impose fees that are tough to accurately track. Additionally, the high costs of many mutual funds erode your earnings over time.

    For example, if you invest $100,000 in a mutual fund that generates an 8% annual return before taking into consideration its fees, and the mutual fund charges an asset-based fee of 1%, over 30 years you will pay nearly $100,000 in fees. Fees like these make it difficult to get ahead, especially when you are already facing a tough market.

    The solution? Consider owning some or all of your stocks directly, so that you aren’t charged asset-based fees. And be sure to ask brokerages you may be considering what they charge per trade, and if they impose any minimum balance/minimum trade requirements. You may be glad you asked.

  3. Personalize Your Investment Portfolio

    One size does not fit all when it comes to investments. If you are just starting your career, you likely have different financial needs, and a different tolerance for risk, than you will when you approach retirement. You may also have preferences regarding companies or industries that you wish to avoid (socially responsible investing), such as alcohol, gambling, tobacco, nuclear power, or those listed as “Worst Offenders” by the Genocide Intervention Network. If you invest in mutual funds or exchange-traded funds (ETFs), you will have little control over any of these issues, since specific investment decisions are made by the fund manager.

    Ultimately, your investments should be tailored to your needs—your risk tolerance, your investment time horizon, how they fit with your other investments, and your values. That may allow you to manage the risk in your portfolio—and to feel good about your investments, in both good times and bad.

  4. Invest Consistently

    Have you recently left the market in favor of cash? Or stopped adding to your existing investments? If so, it may make sense for you to reconsider. Evidence shows that trying to time the market reduces your returns by an average of 1.6% per year1. In addition, being out of the market can result in your missing out on big gains2.

    The reality of investing is that the market will go up and the market will go down. History says that investors that begin early and stay in the market have a much better chance of riding out the bad times and capitalizing on the periods when the market is rising. So consider carefully before you pull out of the market or stop regular periodic investment.

  5. Control Your Capital Gain and Loss Taxes

    Taxes can have a big effect on your investment results. Fortunately, with some planning, you may be able to significantly reduce your taxes.

    Capital gains and losses may have very different federal tax consequences depending on when they are realized—which can be an issue when mutual funds are involved as the mutual fund manager typically handles all issues involving capital gains and losses. Worse yet, by law mutual funds have to distribute capital gains at the end of each calendar year. Even if the fund has posted a net loss for the year, you could still face tax liabilities on capital gains recognized by the fund.

    If you own stocks directly, however, you may be able to choose how and when to realize your capital gains and losses. You can sell your stock now or later, depending on which choice produces better tax results. You can choose which stock to sell and even choose which shares of that stock to sell if you bought shares at different times or at different prices.

    So, save money by learning how to manage your capital gains and losses. And while you’re at it, consider using a brokerage that can help you track and manage your capital gains and losses. Come tax time, you’ll likely be glad you did.

About Folio Investing

Folio Investing, a division of FOLIOfn Investments, Inc., is an online brokerage that enables investors to manage stocks, ETFs, and mutual funds as integrated investment portfolios called “Folios” that deliver better control, greater transparency, and lower cost. Investors can create their own Folios, much like creating personalized ETFs or mutual funds, or invest in over 100 Ready-to-Go Folios representing market indices, sectors, geographical regions, target dates, and more. The Folio Unlimited Plan features unlimited commission-free trading in twice-daily windows for only $29 a month or $290 a year. Ready-to-Go Folios can be managed or unmanaged, are not registered investment companies, and are offered by FOLIOfn Investments, Inc., a registered broker-dealer. FOLIOfn Investments, Inc. does not provide investment, tax, or legal advice. FOLIOfn Investments, Inc., is a member of FINRA/SIPC.