5 Tips To Take An Active Role In Rebuilding Your Portfolio

Wednesday, December 5, 2012, AM | Leave Comment

We all know by now, many Americans have experienced firsthand the ups and downs that come with investing. Recently, we have all been through some very tough years. However, history has shown that the markets have a way of coming back. So instead of letting fear overwhelm and grip you, it may be financially wise to take an active role in rebuilding your portfolio.

5 Tips To Take An Active Role In Rebuilding Your Portfolio

Here are some steps you can implement now in your financial life to help get your savings back on track.

  1. Increase your savings

    Contribute to your workplace savings plan or brokerage and savings accounts. Given what has happened in the markets since fall of 2008, you now need to consider how much more you need to save in order to reach your retirement savings goal. Try to do anything you can to bump up your savings rate.

    If you are fortunate enough to earn a raise or a bonus this year, consider putting the increase toward your workplace savings plan contribution. If your 401(k) plan has a matching employer contribution, consider making your contribution equal to or greater than the matching percentage.

    You may also want to consider opening an Individual Retirement Account (IRA) – either a traditional or a Roth IRA – or contributing to an existing one.

  2. Examine and tune up your portfolio

    Diversification is a time-tested strategy for smoothing out the inevitable ups and downs of the capital markets. Those days are gone when you could buy just in AT&T and such other entities and let it do its own magic.

    Two investment strategies are ill-advised these days:

    1. An all-your-eggs-in-one-basket investment approach is ill advised for most investors.

    2. Being always very conservative at a younger age or always very aggressive at an older age in this volatile market would also be an ill-advised strategy.

    Asset allocation and diversification make more sense for the average investor.

    Maintaining a diversified mix of assets in your portfolio is always a smart option, and there are any number of online tools available to help investors determine what may be most reasonable for them.

    Transitioning slowly into your new plan is key, though, and you’ll want to take a thoughtful approach.

  3. Evaluate your equities

    Financial industry research tells us investors often tend to bail out at the bottom of a market pullback or buying when the market has already peaked. Investors frequently panic and sell. However, before selling, the gains and losses are only on paper.

    During a potential panic state of mind, you could follow these strategies:

    • Recent sell-offs in equities have created what many consider to be excellent buying opportunities, as stock valuations have hit historic lows in many cases.

    • Dollar cost averaging, or putting a certain dollar amount to work on a regular schedule, means buying more shares of a mutual fund or an individual security when its price per share is lower and fewer shares when its price is higher.

    • For investors who have a longer retirement time horizon and are looking for greater growth potential over time, investing in the equity asset class has stood the test of time, and now – when there are potential bargains to be had for some – might be a good time to start building or adding to the equity portion of a portfolio.

  4. Reduce your investment expenses

    An effective approach is to try to keep your investment costs low and they get added right back into your investment return. For example,

    • Shave a few basis points off a mutual fund’s expenses.

    • Many 401(k) plans offer lower-cost investment options.

    • Some provide the choice of investing in index funds and fees tend to be somewhat lower than actively managed mutual funds.

    • Many plans also offer access to special low-cost share classes created expressly for retirement savings vehicles.

  5. Have an alternative plan

    You may want to consider working longer in your current position and putting off retirement until your nest egg recovers a bit more.

    Another alternative might be to take on a part-time job after you retire so that you are not depleting your retirement assets as quickly.

In a Nutshell
The goal, of course, is to try to make your savings last. Sticking to a budget can play a big part in conserving assets. So, too, can making the decision to skip the cost-of-living adjustments you might have given yourself and keeping those assets working for you in their current savings vehicles.

And, spending less while your portfolio is still recovering will leave more of an asset base to build upon when the investment environment improves.

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