Here are a few resolutions that are easier to stick with than many of the traditional January vows. You do not have to overcome big obstacles to follow these tenets of investing, just develop a few good habits.
Re-evaluate Your Portfolio
Analyze your portfolio holdings considering your investment objectives, time horizons and life stage. If you have invested heavily in stocks and are approaching retirement age, you may want to consider reallocating a portion of your portfolio into high-quality bonds. Their long-term return potential may not be as high as stocks, but neither is their short-term volatility. As you get closer to the time when you will need these assets, you may want to consider shifting to more conservative investment vehicles to help reduce risk.
Take the Long-Term View
Consider the quality of a company before you invest and research its track record over five to10 years. Resist judging an investment solely by last year’s return—past performance is no guarantee of future results. A good investment can have an off year and still provide outstanding returns over the long term.
Invest in a Blend of Securities
One time-tested way to help reduce risk in a portfolio is to diversify. That means holding a mix of stocks, bonds and cash-equivalent instruments from a variety of issuers. Younger, conservative investors who want to invest in stocks for long-term growth may want to consider investing a portion of their portfolio in corporate and government bonds. Investors of retirement age should keep in mind that inflation could erode the returns on short-term securities. Maintaining at least a minority portion of a portfolio in equities could improve the chances of keeping total return (yield plus capital gains) ahead of inflation. This strategy does not protect against loss.
Keep an Emergency Fund
Be prepared for unexpected cash needs: emergency medical bills, child care, home repairs and living expenses in case of a sudden job loss. Always keep a portion of your portfolio liquid.
Watch for Tax Developments
The amount you keep after taxes is the most accurate measure of your investment’s performance. Your tax bracket, investment objective and changes in tax codes could make changing your investment strategy worthwhile. Consider speaking with your personal financial and tax advisors about whether tax-advantaged investments may be suitable for you.
Leave a Legacy
In today’s environment, it may be a good idea to consider investment strategies that allow you to leave an estate for your children, grandchildren, other heirs or a favorite charity as part of your overall financial plan. Such plans may not require as much updating as altering your investment objectives. A conversation with your tax and financial advisors could help your beneficiaries eliminate probate (a lengthy procedure whereby a court handles distribution of assets not designated to a beneficiary) and other estate planning issues.
Save Time and Money
Take advantage of the services offered by your brokerage firm. You could save yourself the trouble of delivering stocks and bonds to your financial consultant each time you’re ready to sell an investment by having your securities held in the firm’s street name. When you’re ready to sell, just call your financial advisor. Or, consider consolidating your banking and investments into a central financial brokerage account. You may be able to manage all your investing, savings, borrowing and spending in a single account. And, some brokerage firms may supply you with an ATM card for convenient access to your funds.
A financial plan that includes the above, periodically monitored with the help of your financial advisor, could help make keeping your financial resolutions painless.
Emily L. Richardson is a Financial Advisor with Smith Barney located at 1017 East Morehead Street, Suite 200, Charlotte, NC 28204 and may be reached at 704-331-2236. Citigroup, Inc., its affiliates, and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matters(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
