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CPAs outline basic rules for investors

 

Money Management

Monthly financial advice
from the MACPA

For release: October 2005

These days it's more important than ever to make the most of your investment dollars. For those who are new to investing, here are some tips from the Maryland Association of CPAs.
 

    • Have a plan: Thorough planning based on clear financial goals is the key to successful investing. Whether you are investing for retirement, a down payment on a house or for your child's education, assigning time frames to your financial goals will help you determine the appropriate type of investment.

      For example, if you plan to buy a home in the next two years, you'll need to invest more conservatively than you would if you were investing for your toddler's college education.

    • Understand asset allocation: Asset allocation is the process of dividing your investment dollars among the three main types of investment categories — stocks, bond, and cash / cash equivalents. CPAs emphasize that having the right mix of assets is the single most important predictor in determining the overall performance of your portfolio.

    • Diversify, diversify, diversify: In its simplest terms, a diverse portfolio is one that contains different types of investments within each of the major asset classes. While you can't completely avoid risk in investing, spreading your money among a number of different types of investments can help reduce your level of risk.

    • Know your risk tolerance: Generally, when investing, the greater the risk, the greater you should expect the reward to be. Conversely, the lower the risk, the lower the return. Examine how much risk you are comfortable with. And remember, not every investment is for every investor. If an investment is likely to cause you to lose sleep, it's not the right investment for you.

    • Investigate before you invest: Do your homework. Follow the time-honored advice and invest in what you know. If you're buying stock, start with companies in industries with which you are familiar. You can make more informed investment decisions when you understand a company's products, market, strengths and weaknesses and competitive pressures.

    • Invest for the long term. Pick your investments well and give them enough time to perform. Frequent trading drives up your portfolio's overall transaction costs, which can lower your returns. When you invest for the long term, you may be able to save money on taxes by qualifying for the lower long-term capital gains tax rate.

    • Always read the prospectus: It's important to understand the risks, costs and liquidity of any investments you make. If you have questions, ask your CPA or investment advisor.

    • Don't invest solely on past performance: Past performance does not predict future results. Choose your investments based on your financial goals, risk tolerance and time horizon and align these with your asset allocation and diversification strategies.

    • Don't fall in love with an investment: No matter how much you like a product or admire a company's CEO, when a company stops looking like a good investment, give it up. An emotional attachment to a particular investment may prevent you from being objective.

    • Avoid get-rich-quick schemes: If an investment seems too good to be true, it probably is.

    • Buy and hold — don't buy and forget: Companies and markets change. Monitor your investment portfolio regularly and make adjustments to keep your portfolio in line with your financial goals.

    • Ask for help: A CPA can help you to determine how to add investing to your overall financial plan.



Only CPAs are equipped to address your full range of financial needs with integrity and insight. In Maryland, CPAs must pass a rigorous two-day examination, adhere to strict ethical and professional standards, and, beyond college, complete 80 hours of continuing education every two years to be certified by the state — accountants do not.

Your doctor is certified; your lawyer is certified. Make sure your accountant is a certified public accountant.

For CPA referrals in your area, contact the MACPA at (410) 296-6250 or click here.

The Maryland Association of Certified Public Accountants (MACPA) is a statewide professional association that provides leadership, information and services for its nearly 10,000 CPA members, who are employed in private practice, industry, government and education. CPAs are business and financial professionals who have passed a rigorous two-day examination in order to be licensed by the state. CPAs are committed to protecting the public interest, and must adhere to stringent ethical and professional standards and continuing professional education requirements.

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