people their preferred mix of investments changes as they get older. Younger investors are content with a healthy percentage of higher-risk equities, because they have such a long-term horizon and can weather any temporary storms. Those closer to retirement tend to lean more toward safer bonds or cash.
Even within a stock portfolio, you should periodically review your holdings to make sure that you’re well diversified with a potpourri of large-cap, mid-cap, and small-cap companies, and foreign as well as domestic assets. “Diversification is the cornerstone of any good portfolio,” says Lee Baker, head of financial advisers Apex Financial Services and president of the Financial Planning Association of Georgia. “Asset classes never perform in lockstep with one another, so the closer you can get to your target rate of return with the less risk, the better.”
5. Cover Yourself
Let’s say you’ve done everything right: prepped your retirement accounts, stocked your kid’s 529 college-savings plan, built up an emergency fund. Then it’s all gone, in an instant.
That’s what can happen if you haven’t secured sufficient insurance coverage in every aspect of your life, including life, home, and auto. By safeguarding what you have, playing defense becomes your best offense. A few rules of thumb: Secure 10 times your annual salary in life insurance if possible, to give your family a worry-free future. And consider disability coverage, enough to replace 60% to 70% of your income. “Most people out there don’t understand the value of their ability to earn a living,” advises Baker, who says it’s the single area where most Americans fall short. For more information on what amount of coverage is right for you, do your due diligence by visiting the Insurance Information Institute’s Website (www.iii.org), where you can research the basics and link up with the right insurer in your home state.
Cover and Bernard weren’t about to fall into the trap of thinking that nothing could ever happen to them. As a result, they have term life policies of $350,000 each, took out additional life insurance through their employers, and even secured their own disability policies. “It makes us feel a whole lot better,” says Cover. “So if something ever happens, we’ll have enough coverage to handle it all.”
6. Avoid the bandwagon
Think back only a few years, and you remember a classic investing bandwagon: tech stocks! Only fools weren’t investing! They’re making everyone rich!
Of course, they quickly made many investors very poor, when the market imploded in 2000. Such is the danger of “chasing” returns, or betting on sectors that have already outperformed the market for an extended time period. It can be hard to resist the lure of a hot sector. But if your ultimate investing goal is to buy low and sell high, out-of-favor sectors offer the most promise, not the ones that have been soaring for a long time.
Current sectors that some have accused of reaching bubble-esque proportions are emerging markets, energy, and real estate investment trusts (REITs), all of which have charged ahead for years at