Matching Goals with your investments
Need that money for retirement in the next couple years?
Don't put it in a hot emerging-markets fund. Consider when you'll need access
to your money. This will help you avoid unnecessary transaction fees, penalties
and risk. For some goals, such as paying for college, it may make sense to use
a mix of investments . Experts say: If you are saving for college and your
child is within three years of going to college, you've still got seven years
until that last year of college.
So while the bulk of short-term college savings should
probably be very safe in CDs or short-term bonds or a high-yielding savings
account, maybe some of that money could be invested in stocks. "Just
remember the rule of thumb, that money you'll need within five years shouldn't
be in stocks."
Asset Diversification
You bought a bunch of different funds -- so that means
you're diversified, right? Not necessarily. You don't want to find out that
you're overexposed to a particular market sector after it hits a rough patch.
Understanding the different types of asset classes will help
you strategize. Different asset classes do better at different times. Bonds may
do well while the stock market is suffering and large-cap firms may weather tough
times better than small caps. Boring bonds will never match stocks in a hot
market and small caps may be better poised to take off like a shot than their
larger, lumbering counterparts.
Don’t Ignore your portfolio
Buy and hold can be a smart strategy, but buy and ignore
won't serve you in the long run. Without
reviewing your holdings, you won't know if your portfolio remains balanced, and
you won't shift your holdings to achieve retirement goals or help you cope with
changing life events. The experts says it's important to review your holdings at
least once a year, whether they're within a company-sponsored retirement plan
or outside of one.
