Investing with a Balanced Approach

What kind of investor are you? And what kind of investor do you want to be? Do you rely on investing to give you an adrenaline high? Maybe investing makes you feel like you’re on an emotional roller coaster? Are you spending too much time in front to the computer instead of with family and friends?

Investing does not have to be stressful and hectic. There is a better way to invest that will allow you to relax and feel more confident in your approach. You can accomplish your goals and have a life at the same time. To that end, a balanced portfolio based on a long-term plan can make a big difference.

The reason you invest money is to make money. However, studies of investors have shown that avoiding losses can be more important than securing gains. Fear and uncertainty in knowing what to do keeps many people on the sidelines and in cash. But being too conservative can present a problem if it prevents you from being able to retire or put your children through college.

Since no one can predict what will happen tomorrow, managing your portfolio to take only the amount of risk you can tolerate and afford is the key. Risk exists in bull markets as well as bear markets. Naturally, people start to feel more secure when markets have performed well for a period of time. It is during these good times that investors tend to ignore good portfolio management principles and take on more risk than they can actually handle, only to be blindsided when things turn south.

To achieve your long-term goals, you need to be willing to continue investing when the markets have declined. The good news is that at least you will be buying at lower prices. You also must be willing to take some of your gains off the table by selling investments when prices have gone up. This process is called rebalancing your portfolio. This tool allows you to manage your risks relative to the rewards you are seeking.

Ideally, you should take your emotions out of the equation and stick to a long-term strategy that’s designed to meet your goals. You cannot control the ups and downs of the market, but you can control the amount of risk you take by properly allocating your portfolio, and then rebalancing on a regular basis.

A critical component of successful investing involves maintaining your strategy during volatile times. Expect that your that investments will go up and down in value. Jumping in and out of the market based on how you feel or what you think will happen in the future usually ends up hurting your portfolio over time. No one has a crystal ball, not even the 24-hour talking heads on the financial news channels.

A balanced approach to your portfolio will allow you be less emotional during market swings. If you want to make money in stocks, you need to be in the market when it goes up. This means you will also be in the market when stocks go down.

The trick is to find the right balance so you will be selling assets and buying others at the right time. This doesn’t mean you need to predict what will happen tomorrow. Rather, you establish a plan that calls for a certain percentage of your portfolio to be invested in various asset classes (stocks, bonds, real estate, etc.) based on your risk tolerance and goals. Then, as the value of your investments change, you periodically rebalance back to the same percentages. Rebalancing allows you to sell high and buy low.

This doesn’t necessarily mean that you rebalance on an exact schedule, but you may have target ranges you want to keep. If you want to maintain a portfolio that has 50 percent in stocks and 50 percent in fixed income (bonds), if stocks appreciate 5 percent or 10 percent, consider selling some to bring the total value of the stocks you hold back to 50 percent of your overall portfolio. Likewise, if stocks decline in value, sell part of your fixed income investments and use those proceeds to buy stocks, again to bring the value back up to 50 percent of your overall portfolio.

Investing with a balanced plan is so much easier than chasing after the current hot stock. Once you have a plan in place, stay disciplined and patient and go enjoy your family and friends.

This commentary originally appeared June 4 on TheCasperStarTribune.com

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The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2016, The BAM ALLIANCE

Connie Brezik, CPA/PFS, CFP®

As a wealth advisor at Buckingham Strategic Wealth, Connie works with clients to form a comprehensive financial plan tailored to their individual circumstances, one that includes portfolio management, tax strategies, wealth transfer considerations, retirement analysis and education planning. She welcomes the chance to help clients work through difficult situations, finding solutions that they may not have thought of and guidance about what to do if their plans don't work out as anticipated.

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