Well, it’s a new year and your investment accounts are looking pretty good. The stock market is at an all-time high and the part of your portfolio that is invested in stocks is doing great. But that other part of the portfolio that isn’t in stocks isn’t gaining like the stock part is. Maybe you are thinking of moving some of the non-stock money into more stocks to capture better returns. But stop right there and rethink that decision. The market goes up and the market goes down. And when it’s going up the way it has we tend to forget about that down part. Moving money into investments that have recently done well is a very common investing mistake. Our brains tend to think that whatever is going up is going to go up forever. The reverse is true on the down side. But we know that the investment markets work in cycles and that nothing goes straight up forever.
The better solution is to maintain a balanced portfolio. One that you can live with through the good times and the bad. A portfolio that over time has a high degree of likelihood of achieving your required rate of return - determined by your financial goals and objectives and your personal financial plan.
Your portfolio should be constructed from both stocks and non-stocks. Stocks are the wind in the sails and have traditionally provided the growth necessary to maintain your purchasing power in the face of the ever increasing cost of maintaining your lifestyle. Non-stocks are the ship’s ballast that allows you to live with the sometimes wild swings in the prices of those stocks. When the stock market turns nasty, the non-stocks keep the ship from sinking in the storm and allows you to remain on board to ride out the bad weather and reach your destination.
You should construct your portfolio from a mix of stock and non-stock investments so that it optimizes your chances of achieving your objectives while minimizing the up and down swings in the value of the portfolio. As a service to our Mimi’s readers we are offering a free service to measure the riskiness of your portfolio and to also measure your tolerance for that risk so as to match the appropriate portfolio to each individual while attempting to maximize returns over time.