PUTTING YOUR FINANCIAL AFFAIRS IN ORDER

Are you making significant progress toward your financial goals? If not, is it because you are guilty of making one or more of these common financial mistakes?

PROCRASTINATION — Confused by the complicated process of financial planning and the vast number of investment alternatives, many people react by simply doing nothing. Unfortunately, years can go by with no progress made toward your financial goals. You can always adjust your plan later – the important thing is to get started now.

NOT SAVING ON A REGULAR BASIS — Don’t get trapped into believing that you don’t make enough money or that you have too much debt to start saving for your financial goals. Even if you start out by saving very small amounts, it is important to make saving a habit. Over the years, you should be able to find ways to increase your rate of saving.

NOT INVESTING YOUR SAVINGS — While saving is very important, so is investing those savings. Many people avoid investing because they believe it involves risk, only to find that inflation and taxes seriously erode the value of their savings.

LOSING PATIENCE — Some people, seeing minimal progress in the first couple of years, are tempted to abandon their plan. But it often takes years to see significant results. Assume you place $1,000 in an investment that earns 8% annually. After one year, you will have $1,080; after two years, $1,166; and after three years, $1,260. Let the money compound for 25 years, however, and you will find an investment worth $6,848. (This example is for illustrate purposes only and is not intended to project the performance of any specific investment.) Time and compound interest are powerful factors in achieving your financial goals.

INVESTING IN LAST YEAR’S HOT INVESTMENT — Don’t simply invest in last year’s star performer, be it a specific stock, mutual fund, or investment category. In addition to past performance, it is important to understand the fundamentals of an investment and to consider its prospects for the future.

NOT DIVERSIFYING — Diversification can play an important role in reducing the risks in your portfolio. Since different investments are affected differently by economic events and market factors, owning different types of investments reduces the chances that your entire portfolio will be adversely affected by a particular type of risk. But diversify appropriately – don’t accumulate investments without a specific asset allocation strategy in mind.

NOT MONITORING YOUR INVESTMENTS — Although buying and holding for the long term is often a wise investment strategy, you must review your investments on a periodic basis. Changes in the fundamentals of the investment may necessitate selling.

INVESTING SOLELY FOR TAX REASONS — In their zeal to reduce taxes, some people invest in vehicles that aren’t appropriate. Individual retirement accounts and other pension vehicles are already tax-deferred, so there is no reason to use these accounts for tax-free investments. Some investors in lower tax brackets invest in municipal bonds even though they would be better off on an after-tax basis by investing in taxable investments. It is important to consider all factors before investing.