Invest: 10 Questions

Jonathan Clements

REVIEWING YOUR investment strategy? To get you started, here are 10 questions to wrestle with:

  1. How much cash you will need from your portfolio over the next five years? That money should be out of stocks and riskier bonds—and invested in nothing more adventurous than short-term bonds.
  2. What’s the total sum you expect to save between now and retirement? If you look at that future savings as a cash holding and count it as part of your portfolio’s conservative investments, you may find your portfolio is far less aggressively positioned than its current investment mix suggests.
  3. What market bets are you making? You might see how your portfolio compares to the global market portfolio—the world’s investments weighted by their market capitalization—and then ponder the risks you’re taking by overweighting, say, U.S. or foreign shares, large or small companies, and growth or value stocks.
  4. Do any individual stock positions account for more than 5% of your stock portfolio’s value? It’s dangerous to bet that heavily on any individual stock—and doubly dangerous if it is your employer’s stock.
  5. How much are you paying every year to invest? Even if you actively manage part of your money, consider anchoring your portfolio with index funds, so your weighted average annual expenses are below 0.4% of assets. Not sure how much you’re paying? That’s a bad sign—and probably means you need to simplify your strategy and have a tough conversation with any financial salespeople you use.
  6. How did your stock funds perform in 2008 and your bond funds in 2013? Are you mentally prepared for losses like that? If not, you might adjust your portfolio now, before you find yourself panicking and selling in the midst of a market decline.
  7. Would you be better off with market-tracking index funds? Take a hard look at how your actively managed mutual funds and individual stocks have performed since you bought them—and also consider the performance of the investments you’ve sold and would like to forget about.
  8. Should you allocate more to foreign stocks? The amount recommended by experts has increased over the years, with good reason: Adding foreign shares can reduce a stock portfolio’s overall volatility—plus foreign markets today are much better value than U.S. shares.
  9. Are you using strategies that are either widely discredited or unlikely to succeed? At issue are things like market timing, day trading, technical analysis, options trading and short selling.
  10. When did you last rebalance? If it’s been more than a year, it’s been too long.

This is the seventh article in a 10-part series. To view the other articles in the series, click here. Follow Jonathan on Twitter @ClementsMoney and on Facebook.

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