Published January 2002

With a few simple tips,
start a new year
of investing off right

By Eric Cumley
Columnist

Investing in the stock market can be like riding a roller coaster as prices inevitably move up and down. As an investor, there isn’t a lot you can do about market volatility — but you can become better prepared for it. As we move into the new year, here are a few suggestions:

Pay yourself first
Before you get a chance to spend all of your paycheck, make a resolution to invest some of it. If you want to achieve your financial goals, you need to make investing a priority. The best way to do this is to pay yourself first.

If you wait until you pay all your other bills before you invest, finding the money is nearly always more difficult. By setting up a bank authorization, you can automatically deposit money in an investment account every time you get paid. Once you’ve gotten in the habit of investing this way, you’ll find it easier to increase your contributions as your income increases.

Invest systematically
Everyone says you should always “buy low” and “sell high.” But the fact is that nobody can accurately predict market peaks and valleys, and it just doesn’t make smart investing sense to try. So, instead of waiting for the “right” moment to buy as low as possible, or to sell as high as you can, take a different approach and become a systematic investor by dollar cost averaging.

Dollar cost averaging involves putting a fixed dollar amount into an investment on a monthly basis. By investing a regular amount of money each month, you’ll purchase more shares when prices are down and fewer shares when prices are high. While this strategy cannot guarantee you a profit or prevent a loss, it helps to ensure that you won’t be investing all your money at a market high.

Keep in mind that dollar cost averaging is a long-term investment strategy, so you need to evaluate your ability to continue investing through up and down markets.

Stay in the market
When the market heads south, you might be tempted to take an “investment vacation” yourself. However, bailing out of the market is not a good idea, because markets can come back as quickly as they dissipate. When it does come back — as it historically has — you may miss out on some great opportunities if you’re not still investing at the time.

Need proof? Consider this: If you had invested in the stocks making up the Standard & Poor’s 500 Index every day between 1970 and 1999, you would have earned an annualized return of 9.7 percent. But if you had missed just the 100 best days over this 29-year period, your annualized return would have been a negative 0.8 percent.

In other words, by jumping out of the market at the wrong time — even for a very short while — you would have ended up losing money. The lesson? Stay invested.

The past year has been a tough one for investors. However, the corrections we’ve seen also have brought significant opportunities as well. By paying yourself first, you’ll be in a better position to take advantage of those opportunities.

Here’s wishing you all a happy and prosperous New Year!

Eric Cumley is an Investment Representative with Edward Jones Investments at 1201-C SE Everett Mall Way in Everett. He can be reached at 425-353-2322. Edward Jones is an NYSE-member investment firm with more than 7,000 locations nationwide.

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