property prices. In California during the 1990s, for example, earthquakes
rocked the prices of properties built on landfills. These quakes highlighted
the dangers of building on poor soil. In the early 1980s, real estate values
in the communities of Times Beach, Missouri, and Love Canal, New York,
plunged because of carcinogenic toxic waste contamination. (Ultimately,
many property owners in these areas received compensation for their losses
from the federal government, as well as from some real estate agencies that
didn’t disclose these known contaminants.)
Here are some simple steps you can take to lower the risk of individual investments that can upset your goals:
✓ Do your homework. When you purchase real estate, a whole host of
inspections can save you from buying a money pit. With stocks, you can
examine some measures of value and the company’s financial condition
and business strategy to reduce your chances of buying into an overpriced company or one on the verge of major problems. Parts II, III, and IV
of this book give you more information on researching your investment.
✓ Diversify. Investors who seek growth invest in securities such as stocks.
Placing significant amounts of your capital in one or a handful of securities is risky, particularly if the stocks are in the same industry or closely
related industries. To reduce this risk, purchase stocks in a variety of
industries and companies within each industry. (See Part II for details.)
✓ Hire someone to invest for you. The best mutual funds (see Chapter 8)
offer low-cost, professional management and oversight as well as diversification. Stock mutual funds typically own 25 or more securities in a
variety of companies in different industries. The best exchange-traded
funds offer similar benefits at low cost. In Part III, I explain how you can
invest in real estate in a similar way (that is, by leaving the driving to
someone else).
No comments:
Post a Comment