You don’t need a million dollars to become a successful investor. What you do need is the determination and patience to follow some basic, proven investment strategies. You may want to consider these 10 timeless investment strategies to get you started. 1) Select investments that suit your goals. The best investments for your portfolio depend on your personal goals and time frames, as well as on general market conditions. Safe investments with low price volatility may be appropriate for short-term goals such as saving for a down payment on a home in a year or so. For long-term goals like saving for retirement, you can select growth investments with less concern about short-term price fluctuations. 2) Spread your money around. Allocating your assets among cash, stocks and bonds can reduce risks and increase total returns, because gains in one market often offset losses in another. The right balance for you depends on your age, your assets, and your tolerance for risk. It’s also important to diversify your money within a specific type of investment. One of the easiest ways to diversify your portfolio is to invest in mutual funds, which allow you to own a range of stocks and bonds. 3) Buy gradually. Rather than trying to time the market, try dollar-cost averaging the process of investing a fixed dollar amount in a stock or mutual fund on a regular basis, typically monthly. When you follow this approach, your money buys more shares when the price is low and fewer shares when the price is higher. Over time, this strategy evens out the price you pay for your shares. 4) Aim to beat inflation. Inflation steadily erodes the value of your money. As the cost of living goes up, your investments need to earn more than the current inflation rate to stay ahead of the game. Investing in stock is the best way to beat inflation. Although there is the risk that you may lose part or all of your investment, over the long run, stocks have outperformed other investment vehicles by a significant margin. 5) Know your risk tolerance. The amount of risk you are willing to take often determines your return. Typically, the more volatile an investment is, the more profit you can make, but also the more loss you may incur. Safe investments generally promise a specific but more limited return and don’t always keep pace with inflation. 6) Take advantage of laddering. When you ladder your investments, such as CDs or bonds, you vary their maturity dates so that you have access to your money at pre-planned intervals. The strategy, used effectively, can provide you with a steady stream of income and protect you in the event interest rates drop significantly. 7) Know when to sell. Sometimes, the difference between winning and losing in the stock market isn’t knowing when to buy, it’s knowing when to sell. When you buy a stock, set an upside and downside price target. When the stock reaches your target high, reevaluate it. If it’s still strong, hold onto it. If the stock price remains flat or drops, it may be time to sell and cut your losses. 8) Invest for the long term. If you have a well thought-out investment plan and the patience to stick with it over time, you are likely to fare better than investors who make purchases on hot tips and sell in a panic every time the market drops. 9) Shelter investments from taxes. Not paying taxes on investment earnings can make a big difference over the long run in your total investment. To maximize your after-tax return, consider taking advantage of investments, such as municipal bonds and tax-exempt money funds, which provide tax-exempt income. 10) Keep tabs on your portfolio. You should periodically review your investments and asset allocation in light of your changing goals, tax laws, and investment performance and opportunities. This will help to ensure that your money keeps working for you. Deductible employee expenses Many employees pay for business-related expenses out of their own pockets, but often don’t realize that this may entitle them to a tax deduction. Now is a good time to take a tally of your 1997 employment-related business expenses to determine if you should accelerate any expenses into this year, so you can qualify for a tax deduction. First, it’s important to understand how the tax law treats employee business expenses. These are generally considered miscellaneous expenses, which are deductible to the extent that your total miscellaneous deductions exceed 2 percent of your adjusted gross income (AGI). Tallying your employee business expenses may help you meet this threshold. Here’s what you should include: – Educational expenses. You may deduct educational expenses for schooling that either maintains or improves the skills necessary for your job or is required in order for you to retain your current employment. – Publications and subscriptions. Unreimbursed amounts paid to obtain professional and industry journals, books, or subscriptions qualify as deductible miscellaneous expenses. – Travel expenses. Unreimbursed travel expenses may be deducted in full if they were incurred during a business-related trip while traveling away from your office. Generally, you must have stayed overnight to claim the deduction. – Meals. You also may deduct 50 percent of your meal costs when you are traveling away from home on business. In addition, if you entertain clients or other business associates, you can deduct 50 percent of your meal costs, as long as you discussed business immediately before, during, or after the meal. – Automobile expenses. There are two ways to calculate a deduction for automobile expenses. You may use the actual costs for expenses, such as gas, oil, insurance, repairs, maintenance, and depreciation, or you can use the Internal Revenue Service (IRS) standard mileage rate, which is 31 cents per mile for 1997. You may also deduct the business portion of parking fees and tolls. – Conventions and seminars. If you attended a convention or seminar in your industry or on a topic directly related to your business and are not reimbursed by your employer, the cost of attending the program, including registration, travel, and 50 percent of meals, is deductible. Mel Poteshman is president of Poteshman Consulting International & Co., a West Los Angeles-based business consulting firm.
