NEW YORK (Money Magazine) - We see our friends, colleagues and, worst of all, brothers-in-law making a bundle on a stock or a mutual fund, and we start to wonder why we should plod along with merely average investments.
That's what Anera Shell thought. The Cincinnati C.P.A. had an IRA worth about $20,000 in the late '90s. She invested it in an assortment of mutual funds, where it grew too slowly for her liking. So on a bit of a whim, she put the entire balance into the stock of Yahoo!.
"At the time it was a pretty strong stock," she recalls today. "It had a lot of upside potential." Shell's $20,000 grew to $40,000. Then she decided to use the money in the account not for retirement but to help her husband, the crew chief for a professional race-car driver, buy a partnership interest in his team.
Yahoo!, of course, tanked, falling by more than half from December 1999 to September 2000. And the money left wasn't enough to make payments on the loan Shell and her husband took out to buy into the team. Eventually they needed to sell property to repay the loan, and Shell, now 35, figures she's out about $50,000 in total.
Get it right
Daily newspapers and financial magazines will soon begin the ritual of listing the top-performing stocks and mutual funds of 2004.
Your first impulse may be to plow your money into the names at the top. Don't. Many studies on the subject show that last year's top performers tend to be laggards within a few years. And you never know when the fall will start.
Take a cue from a far wiser Shell: "I am much less willing to listen to the hype."
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