Simple strategies for protecting what you’ve earned

  • Want to be a thoughtful investor? You’ll be well on your way by adhering to the following five simple tenets of investing.

You work hard for your money—income that not only supports your current lifestyle but serves as the foundation for your future peace of mind. From funding higher education expenses to ensuring a comfortable retirement, your long-term savings are the fuel that drives what you are able to achieve, and thus far too critical to neglect or treat carelessly. Want to be a thoughtful investor? You’ll be well on your way by adhering to the following five simple tenets of investing.

A financial plan is a roadmap to help guide you toward achieving your financial goals. Whether you’re just getting started or reviewing your current plan, here are some key things to include:

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Be smart - take advantage of every opportunity you get for tax-deferred savings. It may require some short-term belt tightening, but try to max out your retirement plan contributions. If you can’t, make sure that you are at least deferring enough to take full advantage of any company matching dollars that might be available. Also try to fund the maximum $5,500 amount allowed in an IRA this year ($6,500 if you are age 50 or older), even if your income exceeds the limits for receiving a tax deduction. Over the long haul, the power of tax-deferred growth can truly be your investment portfolio’s best friend.

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Be disciplined – we all have the tendency to overreact to short-term market fluctuations, especially when they are violent in nature. However, it’s important to always keep in mind that significant corrections are an essential part of normal, healthy markets. Trying to time the markets rarely works. Instead, consider using a dollar-cost averaging1 approach to help smooth out the effects of market volatility.

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Be balanced – while most investors realize the inherent dangers in taking on too much risk in their portfolio by holding too much of a single stock, being over-weighted in a single sector or simply not diversifying, few realize that it can be nearly as damaging to be overly conservative. Particularly given the current low-interest-rate environment, an investment portfolio that is too concentrated in cash, CDs, Treasury bills, and other low-yield securities runs a very real risk of actually losing ground to inflation. Look no further than the previous example. While the average investor posted a 2.11 percent average annual return over the past 20 years, the rate of inflation over the same period was 2.18 percent. Work with your advisor to ensure that you have a well-diversified portfolio with a risk profile that appropriately corresponds to your goals.

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Be prepared – make sure to keep enough cash on hand for emergency expenses. As a general rule of thumb, most investors should try to maintain a minimum of 6 - 12 months of living expenses in cash to protect against an unexpected crisis like a job loss or to enable a major expenditure. Why is cash on hand so important when there are plenty of other assets in your portfolio? Because it affords you the ability to weather the storm or fund the purchase without necessitating the sale of portfolio securities which not only may adversely impact your asset allocation, but might also trigger undesired capital gains taxes.

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Be vigilant – a typical “buy and hold” investment strategy often results in equities becoming a larger percentage of your overall portfolio allocation given their historically higher returns. Over time, what began as a 60/40 stock to bond target allocation can soon become 80/20 or 90/10, leaving you with far more portfolio risk than you intended. That’s why it’s important to periodically rebalance to help minimize unintended risk and keep your portfolio properly aligned with your goals.

When it comes to investing, it’s impossible to avoid risk entirely. But a well-allocated and diversified investment portfolio that is aligned with your unique personal goals is a great step in the right direction. Remember to be smart, disciplined, balanced, prepared, and vigilant. And most importantly, don’t forget the sage advice of Warren Buffett who said, “Do not save what is left after spending, but spend what is left after saving.”


1 Regular investing does not assure a profit or protect against a loss in declining markets. Dollar-cost averaging involves continuous investments in securities regardless of fluctuating price levels. Investors should consider their financial ability to continue purchases through periods of l ow-price levels.


Past performance does not guarantee future results. Diversification does not assure a profit.


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