Money

5 things to consider before you buy today's hot investment

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We are again nearing what appear to be all-time highs in the stock market, and when that happens, people tend to say and do strange things. This time around, Amazon, Apple, Google (in the form of its parent company, Alphabet), Microsoft and Netflix are worth $2.4 trillion all on their own, accounting for 13 percent of the entire American economy.

And so everyone wants in on them, from mutual fund managers who have to keep up with the overall stock market's performance in order to keep their jobs to individuals who suddenly realize just how essential many of these companies have become to their lives.

You, however, don't have to follow the herd. You don't have to lose your head. You need not chase the lemmings buying Bitcoin again.

Instead, consider these five things.

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Most winners are lucky

Somewhere there is someone who bought all five of these tech stocks when they were at their lowest price in the past decade, or at their initial public offerings or at some other opportune moment. But that investor is probably lucky. (If not, he or she should start a mutual fund, and you should invest, except you couldn't be sure that the person's skill would persist, so you'd need to rely on luck for that.)

Picking stocks and mutual funds that will do better than other similar investments is a hard thing to do and then repeat over long periods. Maybe you know more than anyone else betting on the same companies, but chances are you don't. So if you win, you're lucky. Do you want to bet your down payment fund or college savings or retirement on luck?

Why, what, how

Before you make any big investment decisions, ask yourself three key questions, which I am borrowing from our Sketch Guy columnist, Carl Richards.

First, why is money important to you? My answer: It helps me do memorable things with my family and helps my kids have things at least as good as I did growing up.

Second, what do you want? Literally, how much money will it take to accomplish those things?

Third, how will you get there? Maybe your housing costs need to come down, or you need to work more or longer, or have fewer kids or save more. Do the math.

The risk

A big part of the "how" involves the percentage of your investments that will need to be in potentially high-return assets like stock or real estate. With return comes risk, but you may need less than you think. Perhaps you love work and want to do what you do for a very long time, so you'll need less money for retirement. Or maybe you don't have kids or have just one in an inexpensive part of the country.

Some goals — many, even, of the "whys" from up above — are modest. Maybe you won't need much stock (and thus much risk) at all. Or maybe you won't need to make big bets on giant individual tech stocks.

The last time

You can learn a lot from the mistakes that other people have made when stocks are many years into a bull market, as they are now. Hint: More people tend to buy more stock, a lot more, in fits of exuberance that they often come to regret when the markets fall, which they inevitably do.

Participation is not mandatory

Itchy trigger finger? CNBC giving you hives? There is nothing wrong with sitting out the daily market report or even your quarterly investment statements.

In fact, if your goals are longer term, it just may be healthier to pay Amazon and Bitcoin and Google no mind at all, even if you own them. If your "whys," "whats" and "hows" line up, you should sleep soundly knowing that you have taken the right amount of risk to satisfy your goals.

And if you can't sleep at all? Well, then it's time to rethink just how much risk your brain is set to bear — and whether you need safer investments to put it at rest.

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This article originally appeared in the New York Times.