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5 Steps To a Healthy Portfolio
By Martin A. Federici, Jr., CEO of both MF Advisers, Inc. and MF Tax & Accounting, Inc.
We all know that it is important to be healthy both physically and mentally (especially considering the current environment), but how about financially? If you’re like many Americans, you’re probably saving/investing for several different goals (retirement and college perhaps?). Since you’re hoping to make that money work as best as possible for your goals, you should make sure your portfolio is healthy as well…but what exactly does that mean? You’re in luck – I’ve got 5 steps you need to make sure you have a healthy portfolio!
Make sure you’re properly diversified (aka “Don’t put all your eggs in one basket”). If you only have 4 stocks (or mutual funds for that matter) in your $250,000 portfolio (let’s assume they all have an equal amount of $ in them – 1/4 each), what happens to your money if one of them was “cooking the books”? You should understand that’s too much risk for you to take with any one investment in your portfolio. You need a certain number of holdings in your portfolio to spread that risk around properly. TIP: You can overdiversify as well, and that’s no good for your portfolio either. 2nd TIP: Diversifying does NOT mean you should hold your investments at multiple custodians/institutions; that may not mean you’re properly diversified and can cause more headaches than consolidating with one quality custodian/institution.
Make sure you review your portfolio on a regular basis. Can’t fall asleep at the wheel, especially if major changes are needed (ex: the recent stock market volatility due to the pandemic). If you don’t monitor your portfolio (or have a fiduciary do it for you), you’re asking for problems – is that what you want? You want to make sure you’ve got the right mix of investments to reach your goals, so stay on top of things (at least annually, but more often may be better).
Make sure you don’t own any crazy/overly-risky investments (unless you truly understand why you own it). Investing in penny stocks or the latest fad (pot stocks, cryptocurrencies, etc.) tend to have as much success as taking your hard-earned money to the casino and hoping you come back with something. If you can’t explain why you own said investment, might be time to put money to work in a better investment choice.
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Make it a habit of buying quality investments for your portfolio when they’re beat down in price (and sell them when they’ve run up). This rule is the one most average investors get completely wrong (and why many need a fiduciary advisor to keep them on the right track). When you go shopping, do you look for full-price items or do you buy what’s on sale? Right – so why would you sell your house and/or property when it’s down over 40% from your original price? If you understand when to buy and sell (and not let emotions rule investment decisions), you’ll force yourself to do what’s right for your portfolio over time.
Regularly add money to your portfolio. Chances are you’ll need to invest periodically to reach your goals (unless you received a lump sum and don’t need to keep adding money to your portfolio), so making it a habit (automate it if possible) is ideal. Obviously, try not to raid money from your portfolio for things it wasn’t meant for (such early withdrawals from an IRA or 401k).
Hopefully you’re following these exact steps for your portfolio (if you are – congrats!). If you didn’t know some/any of these steps before and this article has helped get/keep your portfolio on a healthy track, then…you’re welcome!
Find an experienced financial advisor who makes sure client portfolios are healthy, works for an RIA firm, earns his/her money from fees (NOT commissions), believes in having an abundance of investment choices for clients, and has the heart & demeanor of a teacher, NOT a salesman, and chances are you’ve found the right financial advisor to help you prepare and plan for your financial goals.
About MF Advisers, Inc.
MF Advisers, Inc. is a full-service, fee-only RIA firm and fiduciary based in PA & FL specializing in wealth management, investment advice, and financial planning.
With 25+ years of licensed experience, over 10 years of professional education, and an unwavering commitment to improving your financial situation, MF Advisers, Inc. is the advisory firm to best serve YOU.