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The Key to Investing Success

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Do big losses in your investing portfolio have you wondering if you've got what it takes to be a successful investor? If you're doubting yourself right now, don't. In all likelihood, you're already doing exactly what you should be to succeed with your investments.

It's a good idea to evaluate your investing strategy from time to time. And when stocks fall sharply, a close look at your investments can show you whether the risk you've taken on is in line with what you want and expect.

But just because you're losing money right now doesn't mean that you need to change your investing techniques. In many cases, making unnecessary changes could actually end up being counterproductive to your overall success.

Setting yourself up to succeed
Perhaps the most essential part of a successful strategy is to have an explicit plan for how you'll invest your savings. A plan does a couple of valuable things for investors. It makes sure you get paperwork and other bureaucratic obstacles to investing taken care of in advance, so that when the time comes, following through is easy and painless. In addition, a plan makes it possible for you to handle many investments automatically, taking away the emotional element that often kicks in during market turbulence.

The good news is that most people have at least some elements of an investing plan already in place. You may be investing smart right now and not even know it.

  • If you're taking advantage of an employer-sponsored retirement plan like a 401(k), then part of each paycheck is automatically going toward your retirement goals. And if your employer offers perks like an employer match or additional profit-sharing contributions, that makes your journey toward a happy retirement a little bit shorter.
  • For other goals, from saving for a down payment on a home to putting money aside for college or other family needs, setting up automatic investments from your bank account means that you'll probably keep investing regularly throughout the downturn, avoiding the trap of fear that many investors fall into during tough times.
  • If you've waited for pricey valuations on many stocks to come down to earth, you're probably drooling at some of the opportunities you have now. If you're comfortable with investing in individual stocks, strong, well-known companies like AT&T (NYSE: T  ) , Halliburton (NYSE: HAL  ) , and Merck (NYSE: MRK  ) have all come well off their highs in recent months. Similarly, fund investors are seeing part of their new investments go to work in beaten-down blue chips like Citigroup (NYSE: C  ) , Google (Nasdaq: GOOG  ) , and ExxonMobil (NYSE: XOM  ) .

If you're doing at least a couple of these things, then you're well ahead of many investors. Unlike those who are paralyzed with fear and unable to jump on the current opportunities in the market, you're buying a little bit at a time with every paycheck.

Avoiding the true danger
It's that paralysis that's the real problem. It's only natural for investors to want to wait until bad times blow over before committing more money to stocks. Nobody wants to buy a falling knife like Washington Mutual (NYSE: WM  ) at $10 a share only to see it fall to $5. By waiting, you hope to get in at even lower prices than what you can get now. And if you play it right, your profits can be huge.

But in reality, few people manage to buy at the bottom. More often, you wait until the markets have recovered sharply -- just as they have in the past month -- to feel more comfortable about investing. As a result, two things happen: You miss the bottom, and you often buy right before stocks reverse course and start falling again.

The beauty of automatic investment plans is that you don't have to worry about bad timing. By buying a little bit now and a little bit each month well into the future, you ensure that over time, you'll pick up some shares at bargain prices without having to overcome the psychological barriers that scare many into inaction. That alone makes a strong investing plan worth the effort it takes to put together.

For more on investing in tough times, read about:

Looking for a solid investing plan for your long-term financial goals? Take a look at The Motley Fool's Rule Your Retirement newsletter. You'll find plans that are easy to implement, simple to follow, and time-tested to bring you a successful outcome. A free 30-day trial gives you full access to our planning ideas and much more.

Fool contributor Dan Caplinger is sticking with his investing plan come heck or high water. He doesn't own shares of the companies mentioned in this article. Google is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy helps you plan.


Read/Post Comments (1) | Recommend This Article (1)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 14, 2008, at 9:57 AM, MoneyCentral wrote:

    True...one can never catch the exact bottom or to that the exact top, either!

    What is nearly impossible to target pinpoint top & bottoms and getting that last 10% is a futile effort!

    I'm happy with the 80% in the middle.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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