Thursday, April 21, 2016

Press Release: CFA Society Philippines' Financial Fitness Run now on Its 3rd Year

Last April 1, 2016, the CFA Institute (Chartered Financial Analyst ) --- the global association of investment professionals that sets the standard for professional excellence, will recognize May as Putting Investors First Month which marks the third year of this annual awareness campaign.

As one of the member societies of CFA Institute, CFA Society Philippines is taking part in this global effort by organizing the Financial Fitness Run (FFR). The aim of this run is to inform the investing public about the importance of being financially fit.

 from COL Financial Philippines

The most common and costly mistakes investors make was discussed during the media night. Here are the missteps every individual investors make and should be cautious about in their decision making:

1. No investment strategy
Every investor should form an investment strategy that serves as a framework to guide future decisions. A well-planned strategy takes into account several important factors, including time horizon, tolerance for risk, amount of investable assets, and planned future contributions.

2. Invest individual stocks instead of a diversified portfolio of securities
Investing in an individual stock increases risk versus investing in an already-diversified mutual fund or index fund. Investors should maintain a broadly diversified portfolio incorporating
different asset classes and investment styles. Failing to diversify leaves individuals vulnerable to fluctuations in a particular security or sector.

3. Investing in stocks instead of in companies
Investing is not gambling and shouldn’t be treated as a hit-or-miss proposition potential. Analyze the fundamentals of the company and industry, not day-to-day shifts in stock price.

4. Buying High
The fundamental principle of investing is buy low and sell high. Others at risk for “buying high” are those who follow investment fads, buying the “popular” stocks of the day. Typically, these investments become fashionable for brief periods, leading many to invest at the height of a cycle or trend-just in time to ride it downward.

5. Selling Low
The flip side of the buy-high-sell-low mistake can be just as costly. Keep in mind that not every investment will increase in value and that even professional investors have difficulty beating the S&P 500 index in a given year. Always have a stop-loss order on a stock. It’s far better to take the loss and redeploy the assets toward a more promising investment.

6. Churning your investments
Too-frequent trading cuts into investment returns more than anything else. A study by two professors at the University of California at Davis examined the stock portfolios. The study found that, without transaction costs, these investors received a 17.7% annualized return, which was 0.6% per year better than the stock market itself. But, after transaction costs were included, investors’ returns dropped to 15.3% per year, or 1.8% per year below the market. Again, the solution is a long-term buy-and-hold strategy, rather than an active trading approach.

7. Acting on “tips” and “soundbites”.
Listening to the media for their sole source of investment thinking rather than pursuing a professional relationship with an advisor is a far too common investor mistake. While breaking news and “insider tips” may seem like a promising way to give your portfolio a quick boost, always remember you are investing against professionals who have access to teams of research analysts.

8. Paying too much in fees and commissions
Incredibly, investors are often hard-pressed to cite specifics on the fee structure employed by their investment service provider, including management fees and transactions costs. Investors should, as a precondition to opening an account, make sure they are fully informed as to the associated expenses that accompany every potential investment decision.

9. Decision-making by tax avoidance
While individuals should be aware of the tax implications of their actions, the first objective should always be to make the fundamentally sound investment decision. Some investors, rather than pay a large capital gains tax, will allow the value of shares in a well-performing stock to grow so large it accounts for an inordinate percentage of their overall portfolio.

10. Unrealistic expectations
It is important to take a long-term view of investing and not allow external factors cloud actions and cause you to make a sudden and significant change in strategy. Comparing the performance of your portfolio with relevant benchmark indexes can help an individual develop realistic expectations.

11. Neglect
Individuals often fail to begin an investment program simply because they lack basic knowledge of where or how to start. Likewise, periods of inactivity are frequently the result of discouragement over previous investment losses or negative growth in the equities markets.

12. Not knowing your real tolerance for risk
Keep in mind that there is no such thing as risk-free investing. Determining your appetite for risk involves measuring the potential impact of a real dollar loss of assets on both your portfolio and your psyche. In general, individuals planning for long-term goals should be willing to assume more risk in exchange for the possibility of greater rewards. However, don’t wait until a sudden or near-term drop in the value of your assets to conduct an evaluation of your level of tolerance for risk.

To learn more about CFA Institute go to http://www.cfainstitute.org


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