Next week, we observe Earth Day. First celebrated in 1970, Earth Day has grown into an international movement whose goal is to raise awareness of the need to take action to sustain a healthy, sustainable environment. You can do your part through recycling and other measures, but you can also apply some of the lessons of Earth Day to your financial situation — and, in particular, to your approach to investing.
Give these ideas some thought:
•Make the most of your existing resources. One of the most valuable lessons of Earth Day deals with the need to be responsible managers of the natural resources we have available. As an investor, it's important to maximize the benefits of the resources to which you have access. For example, are you contributing as much as you can afford to your 401(k)? At the very least, you should put in enough to earn your employer's match, if one is offered.
•Take advantage of a favorable environment. Underlying all Earth Day activities is the goal of creating a healthy environment in which to live. You may also benefit from a positive investment environment — and that's what we appear to be experiencing, at least in terms of low interest rates, low inflation and the financial market. So in this favorable atmosphere, look for those investment opportunities that are appropriate for your situation.
•Don't over-consume. Excess consumption has played a big role in causing some of the environmental issues we face. Consequently, many Earth Day programs teach us to get by with less, or at least to avoid acquiring more than we need. To translate this philosophy into your investment habits, take a close look at the number of trades you make. Are you constantly selling old investments and buying new ones in the hopes of capturing higher returns? This type of trading can result in significant fees and transaction costs — and possibly higher taxes, too. Perhaps just as importantly, this constant activity, with all its starts and stops, may detract from your ability to follow a long-term, consistent investment strategy.
•Avoid "toxic" investment moves. The motivation to create Earth Day developed, in part, by the growing awareness that industrial toxins were affecting our air and water. And you can find many toxic investment moves, too. To illustrate: Many people chase after "hot" stocks after hearing about them from friends or relatives, or seeing them touted by so-called experts in the media. But by the time these people acquire the hot stocks, the stocks may already have cooled off. Furthermore, these stocks may not have been appropriate for these investors in the first place. Another potentially "toxic" investment move is to try to time the market — that is, try to buy investments when prices are low and sell when they're high. In theory, this is a good way to invest; in practice, it's almost impossible to predict market highs and lows Instead, consider buying quality investments and holding them for the long term, or at least until your needs change.
By following these Earth Day-related suggestions, you can help yourself make progress toward a healthier — and possibly more productive — investment environment. And that's worth celebrating more than once a year.