It’s “that time of year” in my household.
Since I follow the financial markets every day, you may think I regularly review my financial statements, constantly tweaking here and adjusting there.
But I actually only make big overhauls once a year – in October.
The month holds no significance other than being my birth month, which makes it a good time to review financial accounts, change passwords, and handle a variety of other housekeeping items in the modern world that need to be looked at periodically.
My family has had some big changes over the past few years. My wife and I have become empty nesters, and we’re almost at the finish line as far as paying for our kids’ education. As a result, our financial picture has shifted drastically.
So this year, I may be doing more rejiggering than normal.
Everyone should take a 100-foot view of their portfolio once a year and think about whether their investments are lined up with their goals and concerns. If they aren’t, then there will be some decisions to make.
When markets are down, some people won’t even look at their statements, as they don’t want to be reminded of how much they’ve lost or how far away they are from their goals.
This year, however, with the market at all-time highs, it should be a pleasure.
Use the strong market as an excuse to open up your statement and take a hard look at whether you need to take some risk off or add to your stock holdings. Being underinvested in stocks is just as big of a mistake as being overinvested.
Not sure how to tell if you’re underinvested or overinvested? The Oxford Club’s asset allocation model recommends the following allocations:
30% to U.S. stocks
30% to international stocks
10% to high-yield bonds
10% to investment-grade bonds
10% to inflation-adjusted Treasurys
5% to real estate investment trusts
5% to gold or other precious metals.
Depending on your objectives, your ability to tolerate risk, and when you’ll need the money, your allocation may be more conservative or aggressive than the model above. But it’s a pretty solid road map for many investors.
Once you’re set up with this type of portfolio, check it once a year and move assets around so you stay within those parameters. (Keep in mind that there will be tax consequences for selling investments if the portfolio is in a taxable account.)
However, that’s only the tip of the iceberg.
Below is The Oxford Club’s Wealth Pyramid. The allocation I mentioned above would be your Core Portfolio at the bottom of the pyramid, representing your largest holdings. After you have your long-term portfolio taken care of, you can expand into one or more trading strategies – depending on your risk profile and interest – to maximize your ability to accumulate more wealth and generate income.
The most important thing is to know what you have and whether your assets are allocated properly before you start employing these strategies.
I’ve mentioned the word “risk” several times. The last thing you want is to not be able to sleep at night because you’re overexposed to stocks and worried about a market downturn. But you also don’t want to end up kicking yourself because you didn’t own enough stocks in a big bull market, like the one we’re in now.
Use the recent highs to treat yourself to a peek at your portfolio so you can create the proper balance. And continue to do so every year as a birthday present to yourself.
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