Friday, June 21, 2013, AM | 12 Comments
If you have not made a new-year resolution for the current year concerning your personal finances, either you are very rich and have personal financial advisers to guide you and / or invest for you, or you are just getting by from paycheck to paycheck and you have no desire or saving to worry about something like investing. I agree with folks in both categories. Resolution or not, you must strive to save and invest to grow your money.
However, for a vast number of folks who are able to save and invest but have not done so or have lost considerably the last few years years during the stock market almost crash, this might be a good time to remind them to save, invest, diversify and rebalance their portfolio.
The 4 Strategic steps to get back on your financial track for the current year:
Establish Savings Strategy
You have bills to pay, several kinds of loan to pay. It’s hard to save. However, the last so many months, the saving of American folks went from less than 1% to a bit more than 4%.
Then for the majority, it could be relatively easy or perhaps with no significant extra hardships to save for your retirement.
You never know when the big jobless axe is gonna fall, so set aside three to six months of expenses in an emergency fund.
Consider the following:
- Contributing as much as the employer match in your 401(k)
- Paying down high-interest credit card debt
- Maxing out your 401(k)
- Contributing to an IRA
- Starting to save for other key goals—automatically
Establish Investment Strategy
The most important strategy for investing, most experts agree, is to diversify your investments across different asset classes.
However, diversification is no guarantee that you will not have losses.
It’s just that if you lose in one asset class, chances are you would gain in others. Most of the time, folks have come out ahead by diversifying across asset classes.
Effective asset allocation generally means spreading your money among different types of investments, or asset classes, such as U.S. and international stocks, bonds, and short-term investments.
Establish Diversification Strategy
Your next steps, should you decide to accept it, is to diversify within the asset classes. Stocks can be diversified on size – small, medium, large -, style – growth, income, sector – technology, financial.
Bonds can be diversified by maturity, credit quality, issuer (government, corporate, municipal), as well as sector and geography.
In addition to diversification, every month you can set schedule to automatically transfer money from your savings account to your investment account and keep investing essentially using dollar cost averaging.
Establish Rebalance Portfolio Strategy
Monitor your portfolio throughout the year, and rebalance your diversification strategy at least annually or whenever your financial circumstances change.
In a Nutshell
First, your utmost priority should be to save. Second, you can grow your money by investing it.
Don’t put all your eggs in one basket as the saying goes. Diversify across and within asset classes.
Last but not least, revisit your portfolio at least once a year and rebalance it if need be. You should come out ahead of the market this way.Facebook.com/doable.finance