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With more than 65,000 stocks available around the world, it can be difficult to select the right ones for you. At Edward Jones, we are very selective about the types of stocks we recommend. We use a disciplined approach to find those that align with our investment philosophy and recommend you stick with quality, diversify and invest for the long term.
Because we are committed to quality investments, we don't promote the hottest, newest stock you heard about on TV last night. Over time, we've found that most people who go down that path are disappointed. That's why you may actually hear your financial advisor say "no." There are investments we just won't sell, we believe there's too much risk.
Here's why we believe in quality:
Diversification is a strategy to help make sure your investments aren't concentrated in a certain type or area. For example, an industry can experience a "bubble" where stocks become overpriced and don't really have any track record to speak of. But thousands of investors may put a huge amount of their stock money into shares in that industry. When the bubble bursts, these investors lose their principal. Spreading your money among many different sectors can help reduce your risk. Here are our suggestions for your stock allocation:
Quality and diversification work only if you hold your investments through both good and bad markets. Even quality stocks can go down if the market drops, which may cause you to second-guess your strategy. Don't. Remember why you're investing, and talk with your financial advisor.
Take a look at this chart that shows different holding periods. As the holding period gets longer, the swings between the "best" and the "worst" get less and less dramatic.
For example, during the five-year holding period, the worst decline was over 6%, but that is significantly better than the decline of 43% for the one-year holding period. Hold stocks for 10 years and see what an even greater difference time can make. And during a 20-year time frame, the worst period resulted in a gain of 6.4%.
Don’t lose sight of the importance of time. Focus on the long term and remain disciplined during short-term market volatility.
It's important to talk with your financial advisor about what's appropriate for your specific circumstances. This includes a discussion about what your goals are, when you want to reach them and how much risk you're comfortable taking to get there.
1Past performance does not guarantee future results.
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