On a scale of zero to five, how well do you know your investments? If you aren't on a first-name basis with them (they rank three or below), you do need to get to know them better ... or possibly bid them a formal farewell.
Highly respected - and successful - investing legends like Warren Buffet and Peter Lynch stress the "invest in what you know" and "invest within your circle of competence" approaches.
Would you buy an entertainment centre, a car or a home, or even go to an expensive restaurant, without doing at least some research? If you were offered a job, would you blindly accept it without first finding out as much as you could about both the job and the employer? You need to treat your investments the same way. But you face two "challenges":
(1) Investments are meant to make you money, so you are tempted to take on faith that is what will happen. But even in the world of deposits and bonds, guarantees vary. When it comes to stocks, real estate, a business, collectibles - you are living in risk city.
(2) Doing your due diligence isn't difficult, but it takes time and energy. You need to find out how profits are generated, the history and prospects of the business, goods or services produced, any competitors, executives, suppliers and customers.
Remember, just liking something isn't the same as knowing it well. For example, you might like an airline, a soft drink, a brand of computers - but that's not enough reason to invest blindly in the company's shares. You still have to investigate before you invest.
Even if you rely on, for example, a mutual fund manager or other advisor to invest your money, you need to (1) make sure you feel comfortable with his/her investment style and approach, and (2) understand at least the basics about the investments s/he has made with your money.
After all, the success or failure of your investments will directly impact you (and those who rely on you) more than anybody else.
Mike Grenby is a columnist and independent personal financial advisor; he'll answer questions in this column as space allows but cannot reply personally. Email [email protected]
