What's New in Finances
Is your investment house in order?
The world didn't end in the year 2000, but investors lost about $3 trillion in the U.S. stock market. Now might be a good time to review and rebalance your investment portfolio in order to protect and grow your hard-earned money.
Protect the foundation
The year 2000 reinforced how important it is to diversify your portfolio to minimize your risk. Diversification means choosing investments in several asset classes. Risk refers to the possibility that your investments could decline in value or fail to provide a return greater than the rate of inflation.
While there is no single asset mix appropriate for all investors, most people should have some combination of stocks, bonds, and cash in their portfolio. That's because stocks and bonds often react differently in the same economic climate. To select the mix that is right for you, you need to determine the following:
- What you are ultimately going to use your money for.
- How much you will need.
- When you will need it.
If you don't take the time to map out these three items, it can be difficult to make sound investment choices. With well-defined goals, you can place your money in the right mix of investments (diversification) and keep an appropriate balance between risk and return.
Look inside and outside
Consider assets both inside and outside your retirement plan as you rebalance your portfolio. They are parts of the same picture. To ignore this connection could decrease your diversification and increase your risk.
Be aware of the tax bite
Don't ignore income taxes as you rebalance your portfolio. If you sell assets that you hold outside a retirement plan, the tax man will want his share.
Get a good night's sleep
You have many investment choices in creating a balanced portfolio. There is also a psychological element in a well-balanced portfolio. Never put your money in investments that you don't understand or that create too much stress for you. Investments with less risk have historically had a lower rate of return. You may have to save more money or save money for a longer period of time to meet your goals, but the reward might be a good night's sleep and less worry.
Many things contribute to a well-balanced portfolio, and your investment decisions today can have a long-term impact on your financial future. So take time now to review your portfolio and get your investment house in order.