How you organize your finances now will play a large role in your future. Here are some time-tested strategies that can help you make informed choices.
When you’re investing for retirement, you’re investing for the long term. Market upswings and downturns won’t be as impactful over time, so consider having a portion of your portfolio invested in stocks.
Stocks represent share of ownership in publicly held companies and have historically:
You may want to ride out volatility in the market while you pursue potentially stronger returns from stocks. If you have a short investing time horizon, you may want to handle market volatility by drawing on other savings to fund current needs, rather than selling stocks that may have declined. That can give your equity investments time to potentially recover their value. Please keep in mind that past performance does not guarantee future results.
Successful investing is all about balancing the risk and reward. The risks most investors are familiar with are:
Risk can’t be avoided entirely, but keep in mind that the higher the risk, the higher the possible return (or loss) and the lower the risk, the lower the possible return (or loss). You'll want to be familiar with different categories of investment risk.
Build a portfolio that includes different types of investments or asset classes, such as stocks, bonds, and money market investments, as well as real estate and guaranteed accounts. A well-diversified portfolio can help provide a measure of stability by mitigating the ups and downs of any one type of investment. However, diversification does not guarantee against loss.
Allocation means deciding what percentage of your portfolio goes into each asset class. Be sure to review and re-evaluate your investment decisions over time, rebalancing funds among asset classes as necessary.
For example, if the value of your investments in stocks or bonds has grown significantly higher than other types of investments, you might want to rebalance that accumulation to other parts of your portfolio to keep the percentage of stocks, bonds or other asset classes in line with your initial allocation. Rebalancing does not protect against loss or guarantee that your goal or objectives will be met, but it will help you in your efforts to maintain specific asset breakdowns in asset classes.
Check the numbers before you invest. Look at the investment company’s track record, individual fund sales charges or loads (not all companies have them), and expenses. Higher fees do not necessarily translate into higher returns. In fact, all other things being equal, expense charges can make a substantial difference in your investment returns over the years — remember to take that into account.
1 Source: Stocks, Bonds, Bills and Inflation®, © 2012 Ibbotson Associates, Inc. Based on copyrighted works by Ibbotson and Sinquefield. (All rights reserved. Used with permission.)
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