As April winds down — and with it National Financial Literacy Month — it’s important to note that any time is the right time to practice good investing habits. In part 1, I discussed the importance of an emergency fund and the essentials of a good plan. Now let’s review more ways to give you a successful investing story to tell.
Prioritize Your Financial Future
It’s not selfish to want security for yourself and your loved ones, to pay for a student’s education, or to build a legacy. It’s wise. Here are a couple of methods that may give you a better chance of making your hopes more than goals, but your reality.
Invest Regularly and Automatically
Investing a set amount regularly can help you stay on track. An easy method is to set up an automatic investment. Set the date and amount, and the money gets invested the way you want.
Regular automatic investing also helps you:
- Stop Guessing. Markets go up and down, but investing automatically eliminates any guesswork about when to jump in or bail out. It helps you focus on long-term goals over short-term volatility.
- Ignore Market Swings. You buy more shares when prices are low and fewer shares when prices are high. This strategy can help you ignore emotions when markets move, but it cannot assure a profit or protect you against loss.
- Take advantage of time. Investing regularly, even a little now, may pay off later. This chart shows how regular investments could potentially add up over 30 years.
In addition to regular investing, it’s also smart to invest extra money you receive—big or small. Tax refunds, work bonuses, inheritances—though tempting to spend, they can add up, too.
Stay in Sync
Review your investments periodically to see if your plan still works. I recommend you ask yourself these questions semiannually:
- Am I still comfortable with the risk in my portfolio? If you hold your breath during every market report, you may want to rethink your strategy.
- Am I on track with my goal? Our investment calculators can help you decide.
- Have life events changed my priorities or my timeframe?
- Are stocks, bonds and money markets still in the right proportions? If your portfolio target was 60 percent stocks, 30 percent bonds and 10 percent money markets, has market activity now caused it to have too much, or too little, of one kind investment?
Rebalance to Stay on Track
If you think you need to make a change, you can rebalance, which means buying investments you have too little of, and/or selling investments you have too much of. The idea is to reset your original stock, bond and money market target percentages, or set it on a new course if your goals have changed. We recommend rebalancing, but not too often. Annually is good. You can do this on your own, or with our help. Before rebalancing, consider the fees, penalties or taxes that may come with moving your money.
Stay on Course, Even When It’s Tough
In part 1, I mentioned that the average mutual fund stock investor achieves only 50 percent of returns that the markets do. It might be because investors often choose to sit out in volatile times, missing out on some opportunities.
A remedy? Refrain from attempting to time the markets. Chasing highs and shying away from lows does not add value. Often it results in you buying high, when investments cost more, and selling low, which could result in a loss.
Rely on Trusted Partners
In this series, I’ve listed several techniques that I believe can help you be more successful. Some may seem a little more complicated, but we’re here to help. Our professional investment consultants can guide you through planning, reviewing, rebalancing and more. Even better, it’s a free service!
Ready to put smart habits in place? Contact a consultant today.
This information is for educational purposes and should not be considered investment advice.