WHEN YOU THINK OF investing, you might believe you have no control over the outcome.
Perhaps you think of a casino, where the “house” always wins in the end, while hapless gamblers continue stuffing hard-earned dollars into the slots, fervently hoping for a big payout.
Fortunately, there is good news for people investing for their retirement.
It’s true that nobody can control the movements of the stock-and-bond markets. There’s a positive aspect to that: It’s exactly because of this uncertainty that investors are rewarded for taking the risk.
But retirement planning is more complex than simply taking a flyer on the market, or, even worse, stashing your funds in a certificate of deposit or money market account, the modern-day equivalents of the coffee can in the backyard.
This is where financial advisors add value for clients. Despite market vicissitudes, there are several areas of your financial and investing life that you can control to give yourself a greater chance of a successful retirement outcome.
Here are three points to remember:
- Develop an investment plan tailored to your needs and risk tolerance.
- Structure your portfolio around dimensions of returns.
- Diversify broadly.
Plan Based On Your Needs and Risk Tolerance
Investing isn’t about just growing a bigger pot of money than the next guy. That’s an old-school stock broker’s approach, put into practice before the science of investing and financial planning came into its own.
Jeff Mills, co-chief investment strategist at PNC Financial Services Group in Philadelphia, says investors must consider risk, but their goals should come first. “If you build an investment portfolio that only takes into account how much risk you can tolerate, you are then simply left with the result of that asset allocation, with no consideration of what you need that portfolio to accomplish in the long run from a returns perspective.”
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