3 signs your investment portfolio needs a makeover


The stock market has hit new highs throughout 2021, and the bull market has been raging since the Federal Reserve cut interest rates to near zero in March 2020 as part of its efforts to combat the effects economic effects of COVID-19. But the investment portfolios of many investors can remain neutral despite the rise in the stock market.

Here are some signs that your portfolio is in need of a makeover and some steps you can take to get back on track to financial prosperity.

How do you know your wallet needs help?

Here are signs that your wallet may need some tweaking to help it work better for you.

1. Your wallet seems to never budge

It is one thing if your investment portfolio is not moving when the market is stagnating, but in the midst of a booming bull market, your portfolio should move higher even if it is not tracking the S&P index. 500, the benchmark for the stock market.

If your investments don’t increase, you may be playing way too conservative, with low performing assets, or you may just have the wrong investments for this economic climate. You may be overly invested in bonds or money market funds, both of which offer low returns. If you are risk averse you will end up with very low returns even if you have great savings discipline.

2. Your portfolio is made up of bonds all the time

Another sign that your portfolio is in need of some work may be that there are only bonds all the time.

To be clear, bonds can be a good way to keep your portfolio stable, stabilizing it during tough times and even in regular environments. And a large portion of bonds for retirees is standard advice, making it easier for them to hold onto their wealth while generating income they can use.

But bonds are generally not the best way to build wealth, especially with today’s low interest rates. For people with a decade or more before they need their money, an over-allocation to bonds can stunt your portfolio growth and waste your most important wealth building ally: time.

3. Your portfolio is very volatile

A wallet that never seems to go anywhere is one thing, but at the other extreme there is a bouncing wallet. One day it went up by 10%, but the next day it went down by the same amount.

This type of volatility is likely a sign of several things: (1) A portfolio that holds highly volatile or speculative assets such as Bitcoin, cryptocurrency, biotech stocks, or electric vehicle stocks, among others, or (2) A portfolio that has volatile assets in too high an allocation.

What can you do to fix your wallet?

How you might fix your wallet depends on what exactly is suffering it. Fortunately, there are plenty of options to add a little more zip to your returns or soften an overly aggressive portfolio.

1. Add some balance to your portfolio

Putting the balance in your portfolio can be relatively straightforward: if you have risky assets, you can add safer ones, while you can spice up a bland portfolio with a higher allocation to stocks.

If your portfolio is too heavily allocated to bonds, you can add exposure to equities through an index fund. This type of fund can give you a diversified allocation to stocks, and a good choice is an ETF based on the S&P 500 index such as the Vanguard S&P 500 ETF (VOO). This list of the best index funds gives you other ideas along the same lines.

On the other hand, being too conservative might not be the problem, and a portfolio that has too many risky assets might be a concern. If you have very risky assets, an S&P 500 index fund could add some stability to the portfolio or you could add even more stability by adding a bond ETF to the mix. A bond ETF will settle your portfolio, but at the cost of long-term returns.

2. Pick a long term plan and put it on autopilot

A portfolio that seems to be going nowhere can also be the result of an investor overdoing it, especially trading in and out of the market. This type of active investing can lead the investor to search for the latest hot investment, and almost inevitably leads to buying high and selling low.

The solution here is to pick a solid long-term plan and then put it on autopilot. A human financial advisor can help you put together a solid long term plan, but you can also get help cheaply from one of the best robo advisers. A robo-advisor makes it easy to stick to a financial plan because all you have to do is deposit funds and the robo-advisor handles everything else.

But the important point is this: Pick a workable plan, then put it in place so that you have little involvement. The more you can automate your investment strategy, the better your returns will be.

3. Add exposure to stocks – but not too much

An S&P 500 index fund is a great choice if you are looking to add extra returns to a portfolio with a high bond or cash content, and it may even be an even riskier portfolio (for example, a portfolio containing crypto assets or merchandise). If you invest in a handful of individual stocks, this type of index fund can add diversification and reduce your overall portfolio risk.

But sometimes too much of a good thing can be too good.

For example, you need to be careful if you invest in all stocks and need to access money in less than five years. The volatility of stocks, even an S&P 500 fund, could mean that you may need to sell even when stocks hit a low point. And if you’re nearing retirement and need the cash, you’ll want to plan carefully and probably add some bond exposure for stability and income.

4. Invest money regularly in the market

Wealth is built over decades, not by buying a few stocks at exactly the right time. As the old saying goes, “time in the market is more important than timing in the market”. In other words, you want most of your money in the market to work for you for as long as possible.

It’s good to start investing with a large amount of money, but you will need to cultivate a savings discipline so that you can regularly add more money to your investments. You will start to build a large portfolio that you can leverage later. In fact, this is the principle that 401 (k) plans use, pulling money out of every paycheck.

In addition, with this approach, you will benefit from the average cost in dollars, thereby reducing your risk.

5. Resist the temptation to look at your wallet every day.

When you are making money, it can be easy to monitor the market each day (or week or month) to see how much you are making. But when your investments go down – and they inevitably will – you’ll be tempted to sell because you want to avoid the pain of losing money.

And selling can be the worst thing you can do for your long term returns. If you sell for a capital gain, you will pay taxes (unless you are in a tax-advantaged account such as a 401 (k) or an IRA.) Taxes will affect your returns, but selling also means you are owed. market and are not able to get your money’s worth. Those who sold in March 2020, as the market collapsed with the advent of COVID, have likely missed out on the huge gains since then.

It may help not to review your investments too frequently, if that prompts you to make a rash move. The long-term research is clear: passive investing tends to beat active investing.

At the end of the line

If your portfolio never seems to perform well, maybe it’s time to shake things up and start taking the steps that lead to long-term wealth. You will need to diagnose what may be leading to your underperformance and then find solutions to fix it. If you don’t want to manage your money on your own, bringing in a professional can be worth it and can pay off many times over.

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