Don’t let your investments take a vacation
Published 11:04 am Friday, May 29, 2009
Summer is almost here. And for many people, summer is synonymous with “vacation.”
If you have children or grandchildren, they’re most likely on vacation from school, and if you’ve got the time and motivation, you may take a family vacation over the next few months.
But there’s one part of your life that should never go on vacation, and that’s your investment portfolio.
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How can you keep your investments working for you in all seasons?
Here are a few suggestions to consider:
Don’t stop investing. If you want your investment dollars to continue working, you can’t pull them out of the “work force.”
Unfortunately, many people try to do just that by jumping out of the financial markets when they’re slumping. By doing so, these investors reason, they can avoid taking heavy losses while they bide their time until the market recovers. But if you make a habit out of trying to avoid the market’s bad days, you may end up missing some of its good ones. No one can predict when a bull market will begin, so if you’re out of the market when it starts, your “vacation” from investing could prove expensive.
Don’t rely too much on “lazy” investments. Some investments, by their nature, are going to work harder to help you achieve your long-term goals. To be precise, stocks and stock-based accounts have the potential to help provide the growth you need, though of course the value of these securities can constantly fluctuate.
Conversely, “lazy” securities such as certificates of deposit may produce returns that barely keep up with inflation. That’s not to say there’s no place for these types of investments in your portfolio—after all, they provide both current income and a high degree of preservation of principal—but you simply can’t rely on them to offer the long-term returns that can help you retire comfortably or attain other objectives.
Don’t let your portfolio drift. If you buy a few investments here and there, without rhyme or reason, your portfolio may never work as hard for you as it should. And that’s why you need to develop a solid, cohesive, long-term investment strategy—one that accommodates your risk tolerance, time horizon and specific goals.
Once you’ve established such a strategy, you can use it to determine the right investment mix for your portfolio. Over time, you may need to adjust that mix in response to changes in the financial world and your own life, but overall it should stay true to your strategy.
As you go through life, you’ll find it important to take a vacation now and then, to escape from the pressures of work and to enjoy extra time with family and friends.
But there’s no reason to ever give your investments a day off—so do what you can to keep them gainfully employed.