Rich Is Not a Four-Letter Word by Gerri Willis

Author:Gerri Willis
Language: eng
Format: epub, mobi
Publisher: The Crown Publishing Group
Published: 2016-04-18T16:00:00+00:00

MANAGING YOUR INVESTMENTS INTELLIGENTLY OVER TIME

There are two kinds of investors in my view. There are people who jump in and out of investments, raising their costs as they follow the next big trend. They may keep a substantial portion of their pool of money in cash to allow them to take advantage of opportunities. Then there are people who choose an asset allocation that fits their age and time of life. They pick the funds best suited for them and then invest over time, slowly and consistently. I am the latter type. Even during 2008, when the S&P 500 lost 36 percent of its value, I kept my investments active and continued investing every single month. Yes, I lost 30 percent of my retirement portfolio in that sell-off. But then I turned around and bought at much lower prices as the markets soared, going up 25.9 percent in 2009 and even more in 2013. Not only has my portfolio recovered, it has made impressive gains. In my view, the way you manage your money over time is as important as what you invest in. To make the most of the advice I’ve given you, you’ll need to get the best asset allocation possible. Websites such as those of Betterment, Vanguard, and Morningstar, as well as your own financial adviser if you are using one, can help you figure out what proproportion of your savings to allocate to domestic stocks, international equities, and bonds. A typical mix is 60 percent stocks and 40 percent bonds for investors who are decades from retirement. Over time, the allocations switch so that more money is in less risky bonds, but it depends on your personal circumstances. Next, you’ll need to manage this mix over time. When stocks are soaring, as they have in recent years, you’ll find that the stock portion of your portfolio grows like Topsy. You’ll want to rebalance that portfolio to bring the allocations into line at least once a year. That may mean selling some stock investments to bolster another part of your portfolio. This may sound like a small thing, but over time it matters, just like trimming your hedges. The differences may not be large from year to year, but as the years pass, if you don’t rebalance, your portfolio will get unruly. Target date funds purport to do all that messy managing for you, but I find that many people aren’t happy with their lack of flexibility. Also, as you progress in your career, you’ll probably move to different employers and will want to roll your 401(k) savings over to an IRA or Roth IRA, in which you can manage the money yourself or have a professional do it for you. It’s critical that you do this the right way or you can lose many of your hard-saved dollars to the tax man. Most important: do not touch the money yourself. The best way to accomplish this is to find a broker, financial adviser, or fund company to set up an IRA that can receive savings from your 401(k).

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