A common-sense strategy to build wealth

[Charles Sherry]

A question I often received in my many years in the financial services industry (and one I still get) is, "Where do you think the stock market is headed?" And that is probably followed by, "What stocks do YOU like?"

With a huge cloud still hanging over the economy and shares holding well off the highs, angst among the investing public remains high.

I'm not a market timer as I believe that no one can accurately and consistently pick highs and lows in the market just as a well-respected sports analyst will likely miss key football games every week. And trying to find a few good stocks to cash in on can be a risky game. Besides, what is suitable for me may not fit into your investment plan.

So what's the average investor to do? Start by dollar-cost averaging. Decide to put a set amount into the market on a regular basis, such as monthly. This is one advantage of 401(k) accounts because it forces disciplined investing. Besides, by dollar-cost averaging, you don't risk all of your capital at once.

But just as importantly, diversify. If you relish the challenge of picking individual stocks, you may need at least 30 to 40 companies spread across the ten major sectors of the S&P 500 Index. It is also important to diversify across different segments of the market (asset allocation), including large companies, small companies, and those that reside overseas.

If this is too time-consuming, and for many it is, finding good mutual funds that focus on different areas of the market is a practical alternative. Another option might be ETFs - exchange-traded funds. ETFs work much like mutual funds but trade on the exchange like a stock.

If putting all of your nest egg in the stock market seems risky, it probably is. Thus, adding quality bonds to a well-diversified stock portfolio has historically reduced risk. You won't see the steepest gains in a bull market, but you won't be hurt as badly when the bear growls.

Lastly, if you are unsure, please check with your financial advisor. Factors including your age, when you may need the funds, and the ability to take on and handle risk can drastically alter one's ideal portfolio.

[maryannsms]

Building wealth is as simple as saving a little bit here and a little bit there. You need not have great riches in order to accumulate wealth, but you need to have the drive, determination, and discipline to successfully increase your wealth.

[Ann-Robyn]

Common-sense and the stock market. Yikes. Our portfolios and management is so very emotional and reactionary. Yikes is it scary. Age, as you mentioned is a serious factor. Here is the problem as I see it. Even the so called experts are advising stay and hold along the way until we get to an age where we need our nest-egg. If we are so unfortunate to access retirement funds (retire) when the market adjusts to actual value we are in serious trouble. Timing and age is everything with timing the most important factor. Risky. Be diverse my friends. Make cash flow as log as you can.