This article is provided by Lane D. Talbert, financial advisor with Edward Jones Investments in La Vernia.
Summer is just around the corner, and for many, that means it’s time to travel. But even if you decide to take a vacation, you’ll still want to work on other parts of your life, especially your investments.
So how can you prevent your investments and overall financial strategy from going on “vacation”? Here are some suggestions:
• Check your progress. You should check your performance regularly to make sure your investments are working hard for you, but be careful about how you evaluate your results. Don’t compare your portfolio’s results to a market index, such as the S&P 500, which tracks the stock performance of the 500 largest U.S. companies listed on the American stock exchange. This comparison may not be particularly valid, since ideally your portfolio should include a variety of investments, such as U.S. and foreign stocks, corporate and government bonds, certificates of deposit (CDs), and other securities. So instead of checking your progress against a market index, use a benchmark that makes sense for your personal situation, such as whether your portfolio shows enough growth potential based on compounded interest rates to keep you moving toward a comfortable retirement or other long-term goals.
•Invest with a purpose. When we get passionate about something, it’s usually because we have a clear outcome in mind. This sense of purpose also applies to investing. Buying and selling stocks here and there based on the “hot” tips you see on TV or the internet may result in a mish-mash of portfolios that don’t reflect your needs. Instead, make sure you follow a long-term investment strategy based on your financial goals, risk tolerance, wealth creation needs, liquidity and time horizon, and always keep in mind where you want to go in life – how long you plan to work, what kind of retirement lifestyle you envision, etc.
• Invest strategically. Over the years, you will have many different and competing financial goals. And you want your investment portfolio to help you achieve all of those goals. But that means you need to align specific investments with your specific goals. For example, if you contribute to an IRA and a 401(k) or similar plan, you are saving money for retirement. But if you want to help your children with college or other higher education or training, you might want to save in a 529 education savings plan. This plan allows you to withdraw money tax-free for qualified education expenses. Or, if you want to save for a short-term goal, like a wedding or a long vacation, you can choose investments that provide significant principal protection to ensure the money is available when you need it. Ultimately, this type of goal-based investing helps ensure your portfolio is always performing as intended.
Taking a vacation can leave you feeling relaxed and refreshed. But if your investments are not performing as well as they should, it can end up stressing you out. So, think carefully about your investment strategy, monitor it regularly, and take appropriate action depending on the situation. That way, you might not necessarily enjoy long days on the beach, but you’re more likely to enjoy a brighter outlook.
