By David Nelson, CFA
Probably the most important word I’ll use this morning is consistency. Regardless of age having a plan and sticking to it is the best advice any financial professional can give.
Mutual funds often get a bad rap and even today some talk about a bubble in index funds. It doesn’t matter how good or bad your fund performance is. Many investors won’t even come close to those returns. Many will try to time their way in out to avoid bad news but in the end most will hurt themselves in the process.
If you’re getting up in the middle of the night looking to see what overseas markets are doing then you have the wrong asset allocation.
Dollar Cost Averaging
One of the simplest and most effective tools out there. Keep putting in money each paycheck a defined amount and don’t alter the course because the markets are under pressure. I guarantee you that your chances of calling the bottom using just your gut instinct are slim to none. If the markets get hit you’ll be buying at cheaper prices.
401K
Absolutely participate. If you’re fortunate enough to have an employer who gives you any kind of match it’s a home run. Even if the match is just 5% that’s 5% in the green before you even start.
Allocation
Obviously if you’re younger most of the funds should be geared toward equity. Don’t ignore international. The US isn’t the only country on the planet.
As you get older you’re going to have to dial it back. You’ll have to reduce equity exposure as you approach retirement.
Those approaching retirement have a new set of challenges today. Bonds which have been in a bull market since the 80’s may not offer the protection they once did as an offset to equity exposure. The next bear market may see both stocks and bonds go down.
The good news is that there are some exciting new products out there that can offer defined outcomes.
Robots vs Humans
Robo advisors are the rage now and for many that’s a fine solution. It’s interesting that after being around a few years today some of the largest are adding human advisors as they are finding many customers want to talk to a person.
Hope this helps.
