101 Investing
To prosper in today's economy, get âreal'
By David N. Grenier
Special to the Worcester Business Journal
If the stock market doesn't depress you, returns from more conservative investments will. But those who invest wisely will still make money using the following time-tested principles:
Consider ârealâ returns. Many people are taking their money out of the market and investing it conservatively. They figure a return of 3 or 4 percent is better than losing money. But if the rate of inflation exceeds the rate of return, your money will be worth less than when you invested it. Always consider your ârealâ rate of return, which is your return minus the rate of inflation and what you pay in taxes.
Take measured risks. While you should avoid unnecessary risk, keep in mind that higher risk creates the potential for higher reward. Diversifying your portfolio with a small percentage of riskier investments can improve your long-term return.
Invest for growth and income. Income can help you earn ârealâ returns, while providing downside protection. Convertible securities, dividend-paying stocks and real estate investment trusts (REITs) are examples of investments that provide both income and growth.
Buy low, but be patient. If stock prices drop, it may be a buying opportunity. But how do you know when to buy? Pay attention to fundamentals and invest long-term. If a company's performance merits a higher stock price, prices should adjust.
Consider fees. The higher your fees are, the more you have to earn to be profitable. It may make sense to pay more for proven expertise, but know what you're paying and make an educated choice.
David N. Grenier is president of Cutler Capital Management LLC in Worcester.
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