1. Be smart
Take advantage of every opportunity 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 you’re at least deferring enough to take full advantage of any available company matching dollars. Also try to fund the maximum amount allowed in an IRA this year, 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.
2. Be disciplined
There’s a tendency to overreact to short-term market fluctuations, especially when they’re violent in nature. But 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 averaging approach to help smooth out the effects of market volatility.
3. Be balanced
While most investors realize the inherent dangers in taking on too much risk in their portfolios 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. For example, in a low-interest-rate environment, an investment portfolio that’s too concentrated in cash, CDs, Treasury bills, and other low-yield securities runs a very real risk of actually losing ground to inflation. Work with a Truist Premier Banker to ensure that you have a well-diversified portfolio with a risk profile that appropriately corresponds to your goals.
4. 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 to 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 a storm or fund a purchase without having to sell portfolio securities—which may, in turn, adversely impact your asset allocation or trigger undesired capital gains taxes.
5. 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 your portfolio. It’ll 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’s 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.”
