Mutual funds for every objective
Stock, bond & mixed-asset funds - get to know the difference.
Stock, bond & mixed-asset funds - get to know the difference.
As the New Year rolls around, it may be time to evaluate where you are with your investment plan and consider making some changes to try to improve your standing.
Are you precisely where you want to be with your investment goals? If you are, congratulations—you’re in the minority. About 53% of people polled recently in an investment survey said that one of their New Year’s resolutions would be to save more money.i
Investing goes hand-in-hand with saving, and there are plenty of investing habits that may put you in better shape for the future.
Make a long-term plan—and revisit it annually. To quote the late, great Yogi Berra, “if you don't know where you are going, you'll end up someplace else.” Investing money without a plan for the future leaves you without direction or motivation. You can do this on your own or with a financial planner, but the important step is to take action: Write down how much you’re currently investing, how much you plan to invest over time, and what goals you’re hoping to achieve. Then make a plan to revisit your strategy at the same time next year.
Save and invest regularly. If you haven’t automated your investment contribution plan, you’re missing out on a popular method that simplifies the process. Once you’ve chosen your investments, it’s simply a matter of contributing regularly to those investments to try to continue to build your wealth. You can set your plan on autopilot by arranging to have a set amount of money automatically transferred from your bank into your investment account each month. That way, your contributions will continue to flow into your investment plan without any additional thought or effort on your part.
Read more. Billionaire Warren Buffett, who is well known for his investment prowess, has attributed much of his success to his passion for reading.ii While reading won’t necessarily make you as successful as Warren Buffett, it can certainly help you become more informed and aware of ideas or events that may affect the way you invest. Make it a habit to peruse the news regularly to stay up-to-date on market trends and potential investment opportunities.
Invest more. The median household retirement savings for those ages 55 to 64 is $120,000, according to a NerdWallet analysis.iii And yet many people live for 20 to 40 more years after retirement. Even with Social Security, that may not be enough to finance the comfortable retirement you may be envisioning. If you aren’t maxing out your retirement savings accounts, such as your IRA (Individual Retirement Account) and your 401(k), this may be an ideal time to bump up your contributions. (See: Pairing a Roth IRA with your 401(k) could work smarter for you and your retirement)
Get your high-interest debt off the table. You’ll have more money to put toward saving and investing if you no longer need to pay interest on things like car loans and credit cards. If you’re in debt, get serious about paying off your higher interest loans this year. Try to determine how much you would need to put toward your balance each month to pay off that debt by next year. (There are debt pay-off calculators available on the Internet.) For instance, if you have $5,000 left on a credit card with a 20% interest rate, you would need to submit $463 a month to pay it off in 12 months.
Evaluate your investment mix. How long has it been since you looked at how your money is being allocated and compared it with your original goals? As the markets ebb and flow, you may find yourself with a different allocation of stocks and bonds than you initially intended. Even if your investments are all in mutual funds, your allocation balance may have gotten out of whack. Now would be a good time to consider rebalancing your portfolio to restore order to your investment mix.
Aim for diversification. Maybe when you first started investing, you focused on a specific asset class that was currently producing above-average gains, such as small cap growth funds or emerging market funds. But concentrating your wealth in a single area of the market can be a recipe for disaster if that segment slides. This year consider branching out to other funds or asset groups to spread out your risks. Or consider putting your money into an asset allocation fund that invests across multiple asset classes, such as stocks and bonds. While diversification may not prevent you from losing money on your investments, it may help mitigate your losses. (See: Asset Allocation Funds Can Help Tame Volatility)
Learn to sit still. Chasing performance – selling one type of investment to buy another type of investment that is currently doing better – may lead to worse performance over the long term.iv Once you’ve established that you’re in the right mix of investments and that you’re putting enough away, practice patience and stick with your asset allocation strategy for the long haul – or until you reach a point in your life when it makes sense to tweak your allocation to align with your current goals and objectives.
In the end, managing your investment portfolio may be as simple as setting some concrete goals and checking in more frequently on your progress. Taking steps now toward becoming a more consistent, diversified investor can put you on a better track for savings and investment success.
i Delta Dental, “Survey: What's on Americans' New Year's Resolutions Lists?” December 2017.
ii CNBC.com, “Warren Buffett’s Reading Routine Could Make You Smarter, Science Suggests,” November 16, 2016
iii Nerdwallet.com, “The Average Retirement Savings by Age and Why You Need More,” August 2018
iv Vanguard Quantifies the Impact of Performance-Chasing, August 2014.
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The information provided is not intended as a source for tax, legal or accounting advice. Please consult with a legal and/or tax professional for specific information regarding your individual situation.