Investing checklist: Seven guiding principles

In light of the COVID-19 pandemic, many investors today are uncertain about what the future holds, how this may affect their portfolio and financial security, and if they need to make any changes. Other investors are rethinking their strategies and actually committing new dollars to investments they feel offer good opportunities. Whatever your thought process, we are happy to share our views, review your portfolio and help you navigate the way forward.

I believe long-term investors need to follow tried-and-true guiding principles that may help them stay focused and on track to achieve their goals. With my clients, I talk about seven fundamentals that are essential to successful 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 percent 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 the biggest factor in determining whether you can meet your financial goals. And the earlier you start saving and investing, the more time your contributions have to potentially grow, thanks to the power of compounding.

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 single and not holding any major debt.

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, such as tax-loss harvesting, which may allow you to offset taxable investment gains with taxable investment losses, lowering your current tax bill and leaving you with more money to invest and potentially grow.

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 like bonds 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, and 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 challenge yourself to think anew. Be confident and brave, keep moving forward with life and toward achieving your financial goals – the rewards are awesome!