Investing checklist: 7 guiding principles

In light of geopolitical issues, inflation, rising interest rates and a host of other concerns, many investors today are uncertain about what the future holds and how it may affect their investments. Other investors are rethinking their strategies and committing new dollars to investments they feel offer good opportunity.

I believe long-term investors might want to consider using tried-and-true guiding principles that may help them stay focused and on track to achieve their goals. With my clients, I talk about some essential items that can be key to thoughtful investing.

Establish a financial plan based on your goals. Many of us have several financial goals – save for retirement, college for our children, and a home – to name a few. The first step to making progress toward those goals is creating a plan to reach them. According to Schwab’s 2019 Modern Wealth Survey, more than 60% of Americans who have a written financial plan feel financially stable, while only a third of those without a plan feel that same level of comfort.

Start saving and investing today. Building wealth is a long-term endeavor, and for long-term investors, time in the market is more important than attempting to time the market. Your level of savings is one of the biggest factors in determining whether you can meet your financial goals. The earlier you start saving and investing, the more time your contributions have to potentially grow.

Build a diversified portfolio based on your tolerance for risk. Allocate your money across asset classes, such as stocks, bonds and cash investments, and within each asset class, across different sectors and geographies. To determine what allocation mix is right for you, it’s important to understand your tolerance for potential losses, which is dependent on your time horizon and comfort with volatility. For example, if you have a mortgage, your own business and kids approaching college, you may be less likely to ride out a bear market – given your income needs – than if you are young and building a long-term investment portfolio.

Minimize fees and taxes. Markets can be unpredictable, so control what you know, such as investing fees. A seemingly small difference in fees can potentially make a big difference over time. Regularly review your statement and ask your financial advisor directly about the different fees you are paying, why you’re paying them, and how they are impacting your returns and progress toward financial goals. It’s also important to always consider tax-efficient investing strategies.

Build in protection against significant losses. If you experienced the tech bubble burst in 2000 or the 2008 financial crisis as an investor, you know it can take years to recover, emotionally and in your portfolio. Holding cash and other defensive assets to hedge your portfolio can help provide stability and counteract big stock declines.

Rebalance your portfolio regularly. Forgetting to rebalance is like letting the current steer your boat – you’ll likely end up off course. Keep your portfolio aligned with your goals and risk tolerance. Letting asset classes drift can eventually expose your portfolio to a level of risk that feels uncomfortable, which could cause you to make knee-jerk, and potentially costly, decisions.

Ignore the noise. Markets will always fluctuate in the short term, but whether they’re moving up or down, long-term investors should ignore the noise. Instead, stay focused on making progress toward your goals and stick to your financial plan.

Don’t let the current situation allow you to lose focus. Stay engaged and well informed. Whatever your thought process, we are happy to share our views, review your portfolio and help you navigate the way forward.