FOLLOWING BASIC INVESTMENT GUIDELINES CAN PAY OFF (FINANCIAL FOCUS)

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

The Dow Jones Industrial Average has turned in five straight years of double-digit returns, and many of the broader market indices have been setting records, as well. So, investment success if there for the taking, right?

Actually, it's not quite that simple.

All the attention paid to the skyrocketing Dow tends to obscure the fact that a great many stocks have actually declined over the past few years. And these aren't just wildly speculative companies. In 1999, for example, the list of companies whose stocks were down included names such as Coca-Cola, Gillette, Xerox and Pfizer.

The fact is that nobody not even so-called "market experts" can consistently and accurately predict the stock market's winners and losers. That's why the really smart investors have thrown away their crystal balls. Instead, they've succeeded by following these basic investment guidelines:

• Base your portfolio on a clear set of investment objectives. It's hard to achieve investment success by simply throwing together a collection of stocks, bonds and mutual funds. Before you build your portfolio, ask yourself these questions: What are your long-term goals? What's your tolerance for risk? How long do you plan on investing? Once you have the answers, you'll be able to create a portfolio designed to meet your individual needs.
• Diversify. Diversification may be the oldest and wisest rule of investing. The more diversified you are, the more you will cushion yourself against losses affecting just one type of investment. Plus, by having your investment dollars in many different categories, you'll be able to take advantage of multiple growth opportunities.
• Avoid big risks. As a general rule, the greater the risk incurred by a specific investment, the greater the potential reward. The trick is to find those investments whose risk level is appropriate for you. In evaluating risk, take a long-term perspective. Historically, high-quality securities have rebounded after severe market losses, while low-quality securities sometimes never do.

Also decide how much risk you are willing to accept. It's not at all unusual for the stock market to drop 10 percent in any given year. If your $1,000 investment temporarily drops to $900, you won't like it but you can probably overcome it. However, if you lose half your money on a risky investment, then that investment will have to double in price for you to break even. That could happen, but it's a lot to hope for.

• Don't "over-adjust" your portfolio. It's a good idea to periodically re-evaluate your investment portfolio to make sure it's still aligned with your needs and goals, both of which can change over time. But you'll need to avoid the temptation to over-adjust your portfolio. Constantly buying and selling securities may eventually result in significant taxes and fees, which means you'll have less to invest and your money will grow more slowly.

Of course, there are other general investment guidelines out there. But if you can follow the basic ones listed here, you're well on your way toward becoming a successful investor.

Next week: A look at specific investment rules you won't want to break.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.