- 1). Acquire mutual funds for the long haul. Too many investors chase performance by frequently switching into the best-performing fund at the moment. Mutual funds are long-term investment vehicles. You should not trade them like stocks. A fund's performance depends on its holdings, some of which are long shots. When a fund's position propels it to the top of the charts for a quarter, it may pull back the following quarter. By chasing performance, you would be buying stocks that have already gone up in price and selling them on an eventual pullback. In effect, you would be repeatedly buying high and selling low---a sure recipe for losses.
- 2). Buy low, sell high. As simplistic as this formula may sound, there is a lot to it. Most people take too long to invest, waiting for all the stars to line up and for all the gurus to come out with strong buys. As a result, they inevitably buy too high, toward the end of a bull market, when everyone feels euphoric and secure. Shortly after the purchase, stocks start going down. Investors are reluctant to sell because they have just bought after finally having been convinced that stocks are safe and going higher. The market does not care what investors think. It continues down. Eventually, investors who bought at the top sell in disgust, unable to stomach further losses. In a nutshell, many investors, again, buy high and sell low.
- 3). Use partial buys and sells, or dollar cost average. If you are not certain about which way things are going, don't make all-or-nothing decisions. There is nothing wrong with being in cash and making periodic purchases or sales. If a mutual fund is showing you a profit and things look good, buy more. If the market is making you nervous, sell some of your holdings to raise cash. Use dollar cost averaging or periodic withdrawals if you want to take the guessing out of this process.
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