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Money Management (Distributed by the New Jersey Society of Certified Public Accountants)

CPAs Outline Basic Rules for Investors

These days it's more important than ever to make the most of your investment dollars. Rule number one, according to financial advisor Michael Steiner, CPA, is to have a plan in place before you invest. "All goals are individual," Steiner says. "There are many variables that need to be addressed." In his work with RegentAtlantic Capital, LLC in Chatham, Steiner prepares sophisticated plans and investment programs for high-wealth individuals. As a member of the Personal Financial Planning Interest Group of the New Jersey Society of Certified Public Accountants (NJSCPA), he notes that there are many alternatives for people who are ready to start planning their financial futures.

"There is a large network of financial planners," Steiner says. "Some people do it on an hourly basis. You may have a tax accountant who is familiar with your finances who can get you started. Find a professional you trust. Get started. A good plan is the foundation for your financial well being."

Once you have started charting your financial future, the personal financial planning experts at the NJSCPA have several additional recommendations to help you achieve your goals:

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. As your situation changes, your plan also needs to change.

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/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. Generally, when investing, the greater the risk, the greater you should expect the reward to be and, 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.

Investigate Before You Invest. Do your homework. Follow the time-honored advice and invest in what you know. If you're buying stock, start with companies in industries you're familiar with. You can make more informed investment decisions when you understand a company's products, market, strengths and weaknesses, and competitive pressures.

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.

Always Read the Prospectus. It's important to understand the risks, costs and liquidity of any investments you make. If you have questions, ask your CPA or investment advisor.

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.

Don't Fall In Love With an Investment. No matter how much you like a product or admire a company's CEO, when a company stops looking like a good investment, give it up. An emotional attachment to a particular investment may prevent you from being objective.

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. If you don't have a CPA, you can easily locate one online using the NJSCPA Find-A-CPA service. Visit www.findacpa.org to locate a highly qualified professional who is right for you.

If you would like to receive more information on various financial matters, subscribe to E-CPA, the NJSCPA's free, monthly email newsletter. To subscribe, visit www.njscpa.org/finances or email a subscription request to e-cpa@njscpa.org.

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Money Management is a weekly column on personal finance distributed by the NJSCPA.

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