GR Focus Finance

The old investing cliché is a true one: Buy low and sell high. Unfortunately, too many investors lack the patience to follow through on the second part of that cliché.

Look at what’s happened during the country’s Great Recession. As the national economy stumbled, fell and plummeted, investors got nervous. Many of them pulled the dollars out of their mutual funds as they watched the value of these funds fall.

Unfortunately, that was the wrong thing to do. Too many of these investors pulled their money out of their funds when their investments had shrunk to their lowest levels. Now, the stock market is on the rebound, with the Dow Jones Industrial Average rising past 11,000 in April. And this is no isolated rise; the market has been rising steadily for 13 months now.

Those investors, then, who panicked and pulled their money out of their mutual funds when the market was in the tank lost a significant amount of money.

Now, this rule of patience doesn’t hold for investors who are nearing retirement. They have to do everything they can to protect their money. That often means moving their investment dollars from risky products, like stocks, into safer ones such as bonds and money market accounts.

But those investors who moved their money simply because they couldn’t bear to watch their mutual funds fall in value, are the ones who are now suffering. While most investors today have sent their mutual funds – and their 401(k) accounts – soar along with the stock market, those who pulled their dollars out at the low point are left with only losses to show for their investing.

These investors violated the old cliché. They may have bought low, but they sold low, too, and that’s no way to make big gains when investing.

It’s why financial planners preach patience whenever they advise clients on their investments. This holds true for just about any investment. Look at real estate. Today’s planners will tell you that investors need to hold onto their residential real estate for seven years or longer if they want to see a good profit from it. The same holds true for mutual funds or stocks: Patience is the key here.

Investing sometimes requires nerves of steel. And it always requires patience. Don’t panic when your investment falls in value. It often makes sense to wait out the down times. Just ask anyone who bailed during the depths of the Great Recession. Odds are, these people would love to have kept their money in their mutual funds.

It’s almost become a cliché: Past performance does not guarantee future results. But it’s a lesson too many investors ignore.

Just because a certain mutual fund has performed exceptionally well during the economic slump, doesn’t mean that it will enjoy the same returns once the economy recovers. Just because a certain stock has been rising steadily, doesn’t meant that next week it won’t crash.

The unfortunate truth is this: No one can predict what any mutual fund or stock will do tomorrow, next week, next month or next year. The performances of these vehicles rest on too many factors. Stocks, after all, rise or fall often on rumors and innuendos. A mutual fund’s value may dip or soar based on events that happen in foreign countries thousands of miles away.

This isn’t to say, though, that investing is purely a game of chance. It’s not. Wise investors know how to hedge their bets, and protect themselves financially as much as possible. They know how to spread the investment dollars over a diverse array of stocks, bonds and other investment vehicles so that if one investment struggles, the success of others will cover it.

Too many other investors, though, invest their money on hunches. They may see that a certain stock has been a strong performer for a year and move vast sums of their investment dollars from other vehicles into that steady performer. They’re then shocked when the stock eventually begins to struggle.

The best way to approach investing is to treat it like a job: This means you have to stay abreast of financial news by surfing the Web and visiting the most respected financial advice sites. It means working with a trusted financial advisor who can help guide you through the often challenging world of investing.

And it means, most of all, recognizing that no investment, ever, is a sure thing. Investment always involves a certain amount of risk. Even the hottest funds and stocks can lose value. Even the steadiest of performers can enter a slump. And, despite what some people might claim, there’s no real way to predict when a hot performer will suddenly turn cold.

This brings us to the last big rule of investing: Only invest what you can afford to lose. That does sound a bit like gambling: You don’t bet more than you can lose. The big difference, though, is that investing requires serious study and planning.