Feb
09
The Psychology of Investing: How We Cope With Risk
Researchers have found that investors have a tendency to psychologically exaggerate declines in the performance of an investment and to minimize gains. It's a phenomenon with a complex sounding name -- "myopic loss aversion" -- but also one that makes a simple point: Psychology plays a role in our investment decisions. Understanding that role, the subject of this second installment of a three-part series on investment risk, may help you stay on course toward your long-term financial objectives. Word Play Individuals subconsciously "frame" expectations based upon how the information is presented to them. For instance, would you prefer to invest in a security that has a 40% chance of yielding negative returns or one that has a 60% chance...
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Feb
09
Understanding Bond Investing: It's a Matter of Balance
It's a common misconception to think of bonds as "plain vanilla" investments that are appropriate only for certain types of people, such as financially conservative retirees. But in reality, bond investments may have the potential to add stability to a portfolio and help reduce overall investment risk -- regardless of your age or financial outlook. What Is a Bond? Bonds are investment securities issued by corporations or governments to raise money for a particular purpose. Basically, bonds are the "IOUs" of the business world. There are different types of bond funds, each with varying levels of risk and return potential. Generally speaking, the higher the risk, the better the return potential. For example: Government bond funds invest...
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Mar
28
Your Choices, Your Goals -- Make the Right Match
With thousands of stocks, bonds, and mutual funds to choose from, even the most seasoned investor can find building a portfolio overwhelming. And recent market volatility can make developing -- and sticking to -- an investment strategy challenging. By matching your investments to your goals, assembling the appropriate mix may be easier than you think. Asset Allocation Is Key Since each investment carries a certain degree of risk, taking the time to plan out your choices can pay off in the long term. The blueprint will be your asset allocation -- the way you spread your money among stock, bond, and cash investments. It can help you manage risk and return in your portfolio. The most effective asset allocation is one based on your...
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