Your own portfolio and life will send you signals
Published in the Oct. 15-28, 2014 issue of Morgan Hill Life
By Marisa Otto
Marisa Otto
The kids are back at school and summer vacations are now just fading memories, so it must be autumn. But the seasons don’t just move on the calendar, they also change in your life. And, speaking of changes, you’ll have to make many of them as you move through the years — and that includes changes to your investment portfolio. But how will you know when it’s time to take action?
Just as Mother Nature sends out “signals” to indicate a change in seasons — blooming flowers, falling leaves, warmer or colder temperatures, longer or shorter days — your portfolio will frequently “tell” you when you need to make adjustments. Here are a couple of indicators you may want to heed:
Out-of-balance portfolio
Even the best stocks can lose value when the overall market is down, but if you only own stocks, you could take a big hit during a downturn — and if it happens repeatedly, you may find it hard to even stay invested. After all, stocks will always fluctuate in value, and protection of your principal is not guaranteed. Yet you can at least help defend yourself against market volatility by balancing your portfolio with a mix of stocks, bonds, government securities, certificates of deposit and other investments, with the percentage of each type of asset based on your individual goals, time horizon and risk tolerance.
“Overweighting” of individual investments
Related to the point made above, you can also have too much money kept in a single investment, such as an individual stock or bond.
Sometimes, this “overweighting” can happen almost on its own, as when a stock, or stock-based vehicle, has increased so much in value that it now takes on a larger percentage of your portfolio than you had intended — possibly bringing with it more risk than you had intended, too. As a general rule, no single investment should take up more than a small percentage of your entire portfolio.
Your own life may also send you some messages regarding changes you may need to make to your investment and financial strategies. Here are just a few of the milestones that may trigger necessary moves:
New child
You’ll need to review your life insurance to make sure it’s sufficient to help provide for a newborn or newly adopted child, should anything happen to you. You may also want to begin investing in a college savings vehicle, such as a 529 plan.
New job
Assuming your new job offers you a retirement plan, such as a 401(k) or similar vehicle, you’ll have some choices to make. How much can you afford to contribute? How should you allocate your dollars among the investment choices offered in the plan? How can you best integrate your 401(k) or other plan into your overall investment portfolio to avoid duplication?
Impending retirement
As you enter retirement, you may want to adjust your portfolio to help reduce its short-term fluctuations and to provide more current income opportunities. At the same time, you may still need to invest for growth — you could be retired for two or three decades, and you’ll need to stay ahead of inflation.
Pay close attention to the messages coming from your portfolio — and from your life. These “signals” will give you a good idea of when it’s time to make the right investment-related moves.
Marisa Otto, CFP® is a Financial Advisor with Edward Jones U.S.A. She can be reached at (408) 778-4400, at [email protected] or visit www.edwardjones.com.
