Just as Mother Nature sends us “signals” to indicate seasonal changes — blooming flowers, falling leaves, warmer or colder temperatures and longer or shorter days — your portfolio will frequently indicate when you need to make adjustments.
Here are some indicators to heed:
• Out-of-balance portfolio — Even the best stocks can lose value when the overall market is down, but if you only own stocks, you could take a big hit during a downturn — and if it happens repeatedly, you may find it hard to stay invested. After all, stocks fluctuate in value, and protection of your principal is not guaranteed. Yet you can at least help defend yourself against market volatility by balancing your portfolio with a mix of stocks, bonds, government securities, certificates of deposit and other investments, with the percentage of each type of asset based on your individual goals, time horizon and risk tolerance.
• “Overweighting” of individual investments — You can keep too much money in a single investment, such as an individual stock or bond. Sometimes, this “overweighting” can happen almost on its own, as when a stock, or stock-based vehicle, has increased so much in value that it now takes on a larger percentage of your portfolio than you intended — possibly bringing more risk. As a general rule, no single investment should take up more than a small percentage of your entire portfolio.
Your life also may signal a time for change. These milestones may trigger necessary moves:
• New child — Review your life insurance to ensure it is sufficient to help provide for a newborn or newly adopted child, should anything happen to you. You may also want to begin investing in a college savings vehicle, such as a 529 plan.
• New job — Assuming your new job offers a retirement plan, such as a 401(k) or similar vehicle, how much can you afford to contribute? How should you allocate your dollars among investment choices offered in the plan? How can you best integrate your 401(k) or other plan into your overall investment portfolio to avoid duplication?
• Impending retirement — As you enter retirement, you may want to adjust your portfolio to help reduce short-term fluctuations and provide more current income opportunities. At the same time, you may still need to invest for growth — you could be retired for two or three decades, and you’ll need to stay ahead of inflation.
Pay close attention to the messages coming from your portfolio and from life. These “signals” will give you a good idea of when it’s time to make the right investment-related moves.
Joe Faulk is a Crestview financial adviser.
This article originally appeared on Crestview News Bulletin: FINANCIAL FOCUS: Watch for signs to make portfolio changes