As we continue the journey of a recovering global economy and rising financial markets, there are a few suggestions I would like to make that should contribute to additional long-term improvements in your investment portfolio and personal wealth.
First, develop a plan, ideally a wealth plan, that caters to your specific needs. This plan will serve as a roadmap to guide you through the twists and turns of the economy and financial markets. It will also serve as a reminder of what success looks like over the long-term and a yardstick for measuring actual long-term results.
People, retirees in particular, are very interested in knowing if they will continue to have enough money to live off of. Your personal wealth plan will help you clearly see if you are on the path to financial independence.
The second suggestion is to focus on the investment subjects that really matter. In this case, asset allocation is one of the investment subjects you should pay the most attention to and discuss regularly. The percentage of your portfolio invested in stocks, bonds, alternative assets, and cash will be the primary determinant of the long-term return and volatility of the return for your investment portfolio.
Get this decision right and you are further along in realizing your long-term investment objective than if you spent your time picking General Electric versus Alibaba or corporate bond versus a tax-exempt municipal bond.
The third suggestion pertains to expense management. During the evaluation of investments; everything else being equal, consider selecting the less expensive option.
For example, there are two similar investments expected to provide the same long-term returns. One has an annual fee of 1 percent and the other 0.5 percent. By choosing the investment with the lower fee, you will save and improve the value of your portfolio by 2.5 percent over five years. It is better for you have that 2.5 percent than your advisor or investment manager.
In addition to managing expenses directly tied to your investment portfolio, be cognizant of the positive impact reducing your personal spending will have on your wealth. This is a difficult decision to implement, but saving more money and earning a positive return on it will increase your wealth faster. It’s something to think about.
Finally, get out of the business of trying to time the financial markets. More times than not you will be wrong and it will cost you time and money.
Going back to the first suggestion, have a long-term plan and it should not matter if you begin investing today or phasing it in over a period of time. Make these decisions in accordance with your personal wealth plan and not based on your personal views about how much interest rates will rise from current levels or how the financial markets will react to the Federal Reserve changing language in press releases.
Have a prosperous 2015!
The views expressed are those of the author at the time of writing and are subject to change without notice. Comerica does not assume any liability for losses that may result from the reliance by any person upon any such information or opinions. This material has been distributed for general educational/informational purposes only. It should not be considered as investment advice or a recommendation for any particular security, strategy or investment product, or as personalized investment advice.