TAX TIPS–AND IDEAS FOR NEXT YEAR
It’s finally spring — at least according to the calendar. As we move into a new season, you may adjust your lifestyle, your schedule and even your wardrobe. But no matter what the time of year, some things shouldn’t change — such as your investment guidelines.
Of course, everyone’s financial situation is different. Your needs, goals, tolerance for risk and time horizon are all different from those of your neighbors and co-workers. And yet, when it comes to intelligent investing, some “universals” — common-sense rules that can work for everyone — apply.
Here are a few of these guidelines:
• Rebalance your portfolio. Every year or so, it’s a good idea to review the mix of stocks, bonds and cash instruments in your portfolio. Over time, your financial situation will change, so you may need to adjust your portfolio accordingly. For example, as you near retirement, you may want to move some investment dollars from “growth” instruments to income-producing assets. And sometimes, your portfolio can evolve without your realizing it. Suppose you decided that you wanted a certain percentage of your portfolio in growth stocks. If the value of these stocks increases to the point where it exceeds the desired percentage, you may be taking on more risk than you’re comfortable with. If that happens, it’s clearly time to rebalance.• Lower your risk. Examine your portfolio for low-quality fixed-income investments or ultra-risky stocks. If you find them, give some thought to making some adjustments. In any market climate, you can purchase high-quality investments with reasonable levels of risk. Your investment professional can help you find these vehicles and then discuss the consequences of making adjustments.
• Review your cash balance. Itís always a good idea to have from six months’ to one year’s worth of living expenses available in a highly liquid vehicle, such as a money market account. But beyond that, if you have too much “cash” in your portfolio, you may be depriving yourself of opportunities for long-term growth or current income. Once you’re sure you have cash set aside for emergencies, put the rest to work for you.
• Never stop investing. When is the best time to invest? Today. No matter what’s happening in the market at any given point, you will always have goals you want to meet — college for your kids, a comfortable retirement, etc. If you are going to meet these goals, you must invest consistently. And the sooner you start investing, the more time you will have for your money to potentially grow.
• Diversify. At any given time, you’ll find different classes of investments moving in different directions. Stocks may be up, while bonds are down. Or growth stocks may be up, while international stocks are down. Or municipal bonds may be up, while government-sponsored, mortgage-backed securities are down. You simply can’t afford to put all your dollars in any one type of investment. By spreading your money around a variety of vehicles ó stocks, bonds, treasuries, etc. ó youíll take advantage of the asset classes that are prospering, while cushioning the impact of the ones that are slumping.
If you follow these few basic guidelines, you’ll help position yourself for investment success — winter, spring, summer and fall.
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