Academic journal article Journal of Accountancy

Create a Sound Investment Plan for Clients: Individual Investors Sometimes Prove to Be Their Own Worst Enemies. CPAs Can Help Them Avoid Repeating Common Investment Mistakes That Could Have a Dramatic Impact on Their Returns. to Help Clients Establish a Well-Thought-Out Investment Program, Advise Them To

Academic journal article Journal of Accountancy

Create a Sound Investment Plan for Clients: Individual Investors Sometimes Prove to Be Their Own Worst Enemies. CPAs Can Help Them Avoid Repeating Common Investment Mistakes That Could Have a Dramatic Impact on Their Returns. to Help Clients Establish a Well-Thought-Out Investment Program, Advise Them To

Article excerpt

[] Make a plan. Help the client develop an investment framework to guide future decisions. It should take into account his or her time horizon, risk tolerance, amount of investable assets and planned future contributions. Have clients set goals and decide how much risk they're willing to bear.

[] Own a diversified portfolio instead of only individual stocks. Remind clients their portfolios should incorporate different asset classes and investment styles. Failure to diversify across industries and investment products leaves clients vulnerable to price fluctuations in a particular security or sector.

[] Analyze the companies being invested in. CPAs and clients together should examine the fundamentals of an entity and the industry, not just focus on day-to-day stock price shifts. Remind clients that buying a stock on the basis of market momentum or only because they like a certain product or service is a sure-fire way to lose money.

[] Buy low and sell high. Too many people invest in the asset class or type that did well last year, falsely assuming it should do well in the future. The flip side of the buy-high/sell-low mistake can be just as costly. Too many investors are reluctant to sell a stock when it begins to slide and to redeploy assets into more promising investments. CPAs should recommend that clients always have a stop-loss order on a stock. …

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