Fall Financial Check-In: How Balanced Is Your Portfolio?

VaselineAugust 17, 2024

0 3 minutes read

Fall Financial Check-In: How Balanced Is Your Portfolio?

If you’re new to investing, it can be hard to know where to start in the process. While there is no perfect science to building an investment portfolio, it is important to remember that investing is not a set-it-and-forget strategy. Regular check-ins with an advisor can help ensure you’re getting the most out of your active investments.

Fall is a great time to do just that, and like it or not, it’s coming fast. Take a moment to assess your financial situation and consider the various factors that could affect your portfolio: short- and long-term goals, changes in income, and risk tolerance. Working with a financial advisor is also a great strategy to help you manage your assets and understand the factors that go into building a balanced portfolio. Having this understanding will only strengthen your collaboration with the counselor to help evaluate any updates or life changes as needed.

Below are four considerations when building a balanced portfolio:

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1. Allocation of assets

It’s important to understand basic asset allocation – the variety of different assets you can hold in your portfolio, such as stocks, bonds and cash, alternatives, and the role they play. Consider keeping a healthy mix of these in your portfolio to help you achieve your goals.

Keep in mind that the performance of these assets varies over time, so diversifying your investments can help reduce the level of risk in your portfolio. However, there is no guarantee of success or loss prevention.

2. Timing and phases of investments

Understanding investments means understanding their phases. This usually includes:

The the planning phase. Laying the groundwork for understanding the options available to an investor in stock selection.
The accumulation phase. Bringing the previously made planning to life is the longest phase in the cycle.
The distribution phase. Triggered upon retirement or in the years leading up to retirement.
The inheritance phase. Typically one of the most overlooked sections of personal financial planning, investors are working backwards and trying to achieve their inheritance and retirement goals by focusing more on the accumulation phase.

Most of the cash flow in your mutual fund occurs during the accumulation phase, which typically lasts 35 to 40 years. Making sure you allow enough time for your investments to grow is key to effectively balancing and allocating your portfolio.

You usually need at least one full market cycle (generally three to five years) to participate in equities – money that is invested in a company by purchasing shares. So, consider setting your target allocation — your profit and loss allocation — and look to rebalance your asset allocation at least annually, depending on your portfolio size.

3. Implementation and monitoring of your allocation

For long-term retirement success, work with a financial advisor to create your own investment policy statement, which is a document that outlines the general rules and guidelines for managing your portfolio.

Investors should set clear guidelines to keep their target allocations within different asset classes and avoid distractions from new get-rich-quick schemes.

4. Personalization of distribution

This is based on risk tolerance and financial goals such as retirement and other life stages.

Upon retirement, for example, you are required to withdraw 4% to 5% annually from qualified traditional retirement plans starting at age 73 to meet your required minimum distribution (RMD).

As you approach the distribution phase, adding income-generating investments to your portfolio can be beneficial. You’ll still need to keep in mind the importance of growth in your portfolio, so you shouldn’t abandon your stocks entirely. Your asset allocation, for example, can change from 60% stocks/40% bonds or even 30% bonds/70% stocks, depending on your risk tolerance.

To avoid knee-jerk reactions to market changes, set clear target allocations and stick to them – it’s important to stay the course. Remember, it is not the timing of the market that matters the most, but rather your timing in market.

While there is no one-size-fits-all approach for investors, finding the balance comes with strategic planning. Consider your risk tolerance and consider your financial plans, goals, and potential changing needs.

If you don’t know where to start, contact a financial advisor or visit wealthmanagement.citi.com.

This article was written by and represents the views of our contributing advisor, not the Kiplinger editorial staff. You can check advisor records with help dry or with FINRA.

VaselineAugust 17, 2024

0 3 minutes read

Vaseline

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