#5: Allocate and Diversify
Back during the tech bubble, we saw far too many portfolios invested exclusively in tech stocks. Don’t over concentrate your portfolio in just a few sectors, or in just one asset class. Trying to pick just one or two horses can leave you far behind the race to a comfortable retirement.
Too much of a good thing can actually be bad for you. If your investment goals and comfort level dictates that you should have 50% in equities, then try and keep it at that level. From 2003 to 2007, many investors let their equity allocation get way above what their target allocation started with. Then along came the worst downturn we’ve seen in decades and the “market” did your rebalancing for you, which was not pleasant. Rebalance and make sure your eggs stay in their proper baskets.
#3: Keep Things in Perspective
The reason planners and advisors say you should only invest in equities if your timeframe is five years or longer is simple: The stock market has produced a negative return over a one-year period many, many times. It’s been negative over a two-year period plenty of times. Even a negative return over three years is not uncommon. However, it becomes rare to see the equity markets show negative returns over a rolling four-year period, and even more uncommon over a rolling five-year period. Remember, it’s not about market timing, but time in the market.
#2: Compare Apples to Apples
How your portfolio is invested across various asset classes will have an impact on how your portfolio performs. In fact, this is much more important than your actual security selections. If you don’t own much in equities, but the stock market skyrockets, you won’t benefit from it. However, if the stock market drops, and you have mostly equities, then it shouldn’t be a surprise to see your portfolio decline. Proper expectations are crucial to not being surprised or stressed during any type of market cycle. Much like watching the same scary movie for the second time, if you know what to expect, you won’t be shaken.
#1: Don’t Refresh, Stay Refreshed
What we are NOT talking about is hitting your computer’s refresh button over and over again to update stock quotes or account balances. Many people sit in their office for 40 years doing their job and saving for retirement. Then they sit at home during retirement and watch their savings. Our job as an Investment Advisor is to keep you diversified, keep you balanced, help put things in perspective, and help you understand how your portfolio should match your goals. In other words, our goal is to try and keep you stress-free. Your goal should be to look forward to, and enjoy, your retirement.