In my 20 years as a financial professional, one of the biggest mistakes I see investors make is not having a plan or specific financial goals. Thinking about retirement and how much you will need can be a daunting task. Having a well-defined plan is important for success. Here at the Charles Schwab Independent Branch in Saratoga Springs, we start every discussion with a focus on your goals for retirement. It’s part of Schwab’s simple but integral founding principle: Put the client first.
I’ll be writing an exclusive column for saratogaliving.com on a range of topics that will be of interest to investors, no matter what phase of life you may be in now. For my first one, I’m looking at what goes into smart investing. What long-term investors really need is guiding principles to help them stay focused and on track to achieve their goals. With my clients, I talk about these seven fundamentals that are essential to successful investing:
1. Establish a financial plan based on your goals. Many of us have several financial goals—save for retirement, putting our children through college and buying a home—to name a few. The first step to making progress towards those goals is creating a plan to achieve them. A Health and Retirement Study of Americans over the age of 50 showed that those who created financial plans and stuck with them achieved an average total net worth that was three times higher than those who didn’t.
2. 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.
3. 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 were single and not holding any major debt.
4. 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 towards your 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.
5. 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.
6. 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.
7. 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.
My primary goal as a Schwab Independent Branch Leader is to help you achieve your dreams. The steps mentioned above are a great way to get started. Call or come by the branch, we would love to meet you and help get you heading down the right path.
Maureen Parker is an Independent Branch Leader and Financial Consultant at Charles Schwab with over 22 years of experience helping clients achieve their financial goals. Some content provided here has been compiled from previously published articles authored by various parties at Schwab. Information presented is for general informational purposes only and is not intended as personalized investment advice as individual situations vary. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified professional. Investing involves risk including the potential loss of principal.
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