Tim Dameron

Tim Dameron

Sound reasoning should guide investment decisions

By Tim Dameron
Business Columnist

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When the Federal Reserve raised short-term interest rates in December, did you feel obligated to buy, sell or change your investing strategy solely on that knowledge? The urge to make an investment decision often is influenced by media reports and the sentimental value you apply to those investments. This frame of thinking might lead you to make decisions based on your emotions, and in the long-term, emotional investing might prevent your portfolio from reaching its true potential.

There are seven steps to help prevent this from happening:

  • Focus on the long-term – Remind yourself of what your long-term financial goals are, and ask yourself if making a change would help you reach them. If you still feel you need to make a change, ask your professional for their perspective.
  • Root out unfitting investments – Do you still have your first stock certificate from mom and dad or stock from an early employer? It can be hard to detach from stocks with an emotional connection, but portfolios need pruning on a regular basis to perform at their best. Portfolios and individual stocks should be evaluated periodically to determine whether they still are appropriate holdings given your time horizon, risk tolerance and overall portfolio.
  • Strive for a balanced portfolio – Portfolios need to be rebalanced over time, as your individual circumstances and the individual holdings’ situation changes. Take an objective look at your portfolio and ensure you are comfortable with the level of risk. If company stock options are available too, make sure you’re aware of how that may impact your overall investment strategy. While it’s good to have confidence in your company, having too much stock in one company may expose you to more risk.
  • Be consistent – Counteract impulse buying and selling with a consistent approach to investing. Automated investing makes it easy to implement a disciplined approach, such as investing a set amount at regular intervals. This can be a way to help minimize the effects of market volatility in a portfolio.
  • Embrace diversity – Diversity may provide balance in the event one or more sectors are down, but do keep in mind that diversity alone cannot protect against an investment loss.
  • Sell when the time is right – If you identify a loser that’s not likely to turn around, it may be advantageous to sell it now.
  • Request a portfolio review – Defer to the experts. Ask a financial professional to conduct an objective review of your portfolio with an eye to performance and your financial goals. Together, you can look for opportunities to grow your earnings through disciplined investing strategies.

This column is provided by Ameriprise Financial Services for Tim Dameron, its financial adviser in Rocky Mount.