One central aspect of a sound financial strategy involves practically making your own luck.
By definition, you can’t directly control your luck. What you can do is plan around approaches that maximize the likelihood that you’ll be in the right place, at the right time—and that your investments will bear fruits accordingly.
Within the financial setting, “making your own luck” may look like a lot of different things and may be referred to using several different names, ranging from diversification through risk management. And even if your portfolio seems stable and continues to do well, it might be worth considering ways you could optimize it further—so you can make more off of it.
Another lesser-discussed aspect of making your own luck is making sure you play by the rules; but doing so doesn’t have to cost you very much at all.
We’ve assembled some straightforward steps you can take to get more out of your investments.
- Rebalance your investments regularly.
Whether you’ve made one-off transactions or the value of specific types of assets have evolved over the lifespan of your portfolio, rebalancing your investments with some regularity can help you ensure that you continue to meet your investment goals.
For example, if you set out to have half of your portfolio held in stocks and that percentage has dropped from 50% to 20% due to a bear market, it’s a good idea to buy up to 50% again. When markets recover, you will likely profit.
It may be a good idea to consult with an expert on the rebalancing cadence. Setting a threshold for rebalancing—such as an allocation percentage change of 10% triggering a rebalance—can set guidelines for portfolio maintenance and reactivity. You also should consider how frequently you’d like to rebalance, since doing so may result in fees incurred.
That said, make sure you are aware of the fees associated with rebalancing. Otherwise, you may incur short-term trading fees that cancel out the investment gains you get from rebalancing.
- Don’t let experts or market hype limit your investing.
There’s a lot of noise in the world of investment advice, particularly with individuals who go on-the-record to predict positive performance by a particular asset. There are no crystal balls in investing; these commentators should be taken with a grain of salt.
Be wary of anyone encouraging you to invest in any one thing—but be equally wary of the skeptics. Particularly when the economy is doing poorly, critics come out and try to discourage or encourage specific types of investments. This includes warning against investor participation when the market is suffering. As we’ve seen with the coronavirus pandemic’s effects on stock market performance, panic hurts everyone.
The decision to fund a portfolio should be a proactive component of an individual’s plan, not a reactive step taken due to market trends. These trends can be a consideration when choosing what to buy, sell, or trade, but all decisions should be made calmly and logically.
Another consideration to keep in mind: there will always be a need for functioning businesses to carry out essential services and even to address any crisis happening at any given point in time. With a balanced portfolio, you can increase the likelihood that you will be invested in a company or financial product that is winning, even when times are tough.
- Buy alternative assets in your retirement savings accounts.
You may think you need to be constrained to the mutual funds, stocks, and bonds that conventional retirement accounts offer. Or maybe you’ve wanted to try buying assets like gold, but you’ve been wary of having to pay capital gains taxes.
But by leveraging other types of retirement accounts such as self-directed IRAs, you can gain access to other types of assets.
Say, for example, you’ve been wanting to venture out of fiat currency and diversify with cryptocurrency. You can buy cryptocurrency and enjoy tax-free growth using a self-directed IRA. You won’t have to pay capital gains taxes. Additionally, you can choose whether you want to pay taxes upfront, or whether you’d rather defer paying taxes and instead make a tax-free contribution with your purchase.
- Consider dollar cost averaging (DCA).
This sort of ties in with an investment principle from the first item listed here, and it centers on making regular contributions to your investment portfolio. Regardless of the price of shares, via DCA, you continue investing the same amount of money each and every month.
Many people find this to be useful in getting them to actually pull the trigger and invest, as opposed to those who think you should necessarily set aside a large amount of money in one sum before you proceed to invest. DCA stops you from wasting precious time for growth while you worry about whether it’s the “right time” to invest, and instead holds you accountable to actually go ahead and do it.
- Minimize taxes and fees as much as possible.
What might sound like a small fee now could rapidly escalate as the value of your portfolio increases. As competition in the financial services industry as well as in the investment app industry only continues to grow, so do the opportunities to save costs on service fees.
These fees come under various names: management fees, commissions, and so forth. You may have operating fees, advisory fees, or management fees that are levied annually for the duration of time that your retirement account is open. You may also have transaction fees, which are taken whenever you buy, sell, or trade assets within the service.
You may also have custodian fees or other annual account fees that are tired to tax reporting, which often can be considered separately from the standard management fees since a limited set of accounts require an added layer of reporting (e.g. IRAs). While these may be pesky and you should try to shop around, be sure that you are not compromising the level of service that you get. For example, if you are paying for IRS reporting to be managed, it might be worth paying a premium to work with a custodian who is very highly regarded and known to do thorough, timely work.
Also consider the fee structure. A flat fee might be the easiest and often best option, since you can plan around this defined cost. A percentage fee limits your profit potential, particularly as your success increases.
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