Fall Financial Check-In: How Balanced Is Your Portfolio?
Here are four things to consider when building your portfolio and making sure it's optimized for the best possible outcome.
If you are new to investments, 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. Conducting regular check-ins with an adviser can help ensure you’re making the most of your investible assets.
Fall is a great time to do just that, and like or not, it is coming fast. Take a moment to assess your financial standing and consider the various factors that might impact your portfolio: short- and long-term goals, changes in income and tolerance for risk. Working with a financial adviser is also a great strategy to help manage your assets and understand the factors that go into building a balanced portfolio. Having this understanding will only strengthen your collaboration with the adviser to help assess any life updates or changes as needed.
Below are four considerations when building a balanced portfolio:
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Asset allocation
It’s important to understand basic asset allocation — the variety of different assets you can have in your portfolio, such as stocks, bonds and cash, alternatives and the role they play. Consider maintaining a healthy mix of these in your portfolio to help you achieve your goals.
Remember that the performance of these assets varies over time, so diversifying your investments may help reduce the risk level in your portfolio. However, there is no guarantee of success or loss prevention.
2. Investment timeline and phases
Understanding investments means understanding their phases. This typically includes:
- The planning phase. Setting the stage for understanding options available to an investor in terms of security selection.
- The accumulation phase. Bringing to life the planning done previously and is the longest phase in the cycle.
- The distribution phase. Triggered upon retirement or in the years leading to retirement.
- The legacy phase. Typically one of the most ignored sections of personal financial planning, investors work backward and try to attain their legacy and retirement goals by focusing more on the accumulation phase.
Most of the cash inflow into your investment pool happens during the accumulation phase, which typically lasts 35 to 40 years. Ensuring that you allow enough time for your investments to grow is key to effectively balancing and allocating your portfolio.
You typically need at least a 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 — allocating for profit and loss — and look to rebalance your asset allocation at least annually, depending on the size of the portfolio.
3. Implementing and monitoring your allocation
For long-term retirement success, work with a financial adviser to create your own investment policy statement, which is a document outlining general rules and guidelines for the management of your portfolio.
Investors should lay out clear guidelines to keep their target allocations within range for the various asset classes and avoid distractions from new get-rich-quick schemes.
4. Tailoring your distribution
This is based on your risk tolerance and financial goals, like retirement and other life milestones.
With retirement, for example, you are required to withdraw 4% to 5% annually from traditional qualified retirement plans starting at age 73 to satisfy your required minimum distribution (RMD).
As you near the distribution phase, adding income-generating investments to your portfolio may be beneficial. You will still need to keep in mind the importance of growth in your portfolio, so you shouldn’t abandon your equities completely. Your asset allocation, for example, might change from the 60% stocks/40% bonds model or even 30% bonds/70% stocks model, depending on your risk tolerance.
To avoid knee-jerk reactions to changes in the market, set clear target allocations and don’t deviate from them — it’s important to stay the course. Remember, it’s not timing the market that matters most, but rather your time in the market.
While there is no one-size-fits-all approach for investors, finding balance comes with strategic planning. Account for your risk tolerance and consider your financial plans, goals and potential changing needs.
If you don’t know where to start, get in touch with a financial adviser or visit wealthmanagement.citi.com.
Related Content
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Judith “Judi” Leahy is a Senior Wealth Advisor based out of Rye, N.Y., with more than three decades of experience in financial services. She earned the Certified Investment Management Analyst (CIMA) designation with the Wharton School in 1999, extending her ability to construct efficient portfolios using a diverse range of investments including equities, tax free and taxable fixed income, annuities, options and alternative investments. Since joining Citi as an advisor in 2006, Judi’s concierge-style guidance and personalized advice have led to strong client trust and relationships.
-
Moderna Stock Plunges as Vaccine Maker Slashes R&D Budget: What to Know
Moderna stock is plunging Thursday after the COVID-19 vaccine maker announced plans to drastically cut its R&D spending to focus on new product approvals.
By Joey Solitro Published
-
Colorado’s New Property Tax Reform Could Save You Hundreds
Property Tax The Centennial State just signed a new property tax bill into law. Here’s what you need to know.
By Gabriella Cruz-Martínez Published
-
Estate Planning: How to Protect Family Treasures
Items like antiques, art and jewelry, as well as family photos, can carry huge emotional ties. The more specific you are in your plans, the better for everyone.
By Patrick M. Simasko, J.D. Published
-
529 Plans: A Powerful Way to Tackle Rising Education Costs
Contributions to 529 plans grow tax-free and are not taxed when they are used to pay for qualified educational expenses for the beneficiary.
By Denise McClain, JD, CPA Published
-
Saving to Be a 401(k) Millionaire? Plan for Taxes Now
Your tax bite in retirement could be excruciating. Here's why super savers need to get serious about protecting themselves.
By Brian Gray Published
-
Considering a 721 Exchange? Adopt a Buyer Beware Mindset
Having a tax-smart exit strategy for your real estate investment is a great idea, but if a 721 exchange is part of your plan, here's what you need to consider.
By Dwight Kay Published
-
Five December 31 Tax Deadlines for Retirees
The end of the year will be here before you know it, so it might be a good idea to start thinking soon about what you need to do for taxes before it arrives.
By Evan T. Beach, CFP®, AWMA® Published
-
For Lawyers, the Bar Exam Is More Than Just a Test
People who pass it within a few tries are proving they understand legal ethics and can handle pressure, advocate for consumers and communicate in writing.
By H. Dennis Beaver, Esq. Published
-
How AI Can Guide Introverts to Success in Professional Services
Fear of rejection and awkward conversations can keep accounting and law firms from realizing significant growth. AI can help with that.
By Timothy Keith Published
-
In Family Philanthropy, Embracing Differences Can Pay Off
Different approaches to charitable giving among generations and individuals can actually enhance the family's giving. Here's how.
By Julia Chu Published