CPAs Outline Basic Rules for Investors

These days it’s more important than ever to make the most of your investment dollars. For those who are new to investing, here are some tips from the California Society of CPAs (

HAVE A PLAN. Thorough planning based on clear financial goals is the key to successful investing. Whether you are investing for retirement, a down payment on a house or for your child’s education, assigning time frames to your financial goals will help you determine the appropriate type of investment. For example, if you plan to buy a home in the next two years, you’ll need to invest more conservatively than you would if you were investing for your toddler’s college education.

UNDERSTAND ASSET ALLOCATION. Asset allocation is the process of dividing your investment dollars among the three main types of investment categories: stocks, bonds, and cash or cash equivalents. CPAs emphasize that having the right mix of assets is the single most important predictor in determining the overall performance of your portfolio.

DIVERSIFY, DIVERSIFY, DIVERSIFY. In its simplest terms, a diverse portfolio is one that contains different types of investments within each of the major asset classes. While you can’t completely avoid risk in investing, spreading your money among a number of different types of investments can help reduce your level of risk.

KNOW YOUR RISK TOLERANCE. When investing, generally the greater the risk, the greater you should expect the reward to be. Conversely, the lower the risk, the lower the return. Examine how much risk you are comfortable with. And remember, not every investment is for every investor. If an investment is likely to cause you to lose sleep, it’s not the right investment for you.

INVEST FOR THE LONG TERM. Pick your investments well and give them enough time to perform. Frequent trading drives up your portfolio’s overall transaction costs, which can lower your returns. When you invest for the long term, you may be able to save money on taxes by qualifying for the lower long-term capital gains tax rate.

DON’T INVEST SOLELY ON PAST PERFORMANCE. Past performance does not predict future results. Choose your investments based on your financial goals, risk tolerance and time horizon, and align these with your asset allocation and diversification strategies.

AVOID GET RICH QUICK SCHEMES. If an investment seems too good to be true, it probably is.

BUY AND HOLD; DON’T BUY AND FORGET. Companies and markets change. Monitor your investment portfolio regularly and make adjustments to keep your portfolio in line with your financial goals.

ASK FOR HELP. A CPA can help you to determine how to add investing to your overall financial plan.