{"id":12348,"date":"2018-02-28T11:41:04","date_gmt":"2018-02-28T19:41:04","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=12348"},"modified":"2018-02-28T11:41:04","modified_gmt":"2018-02-28T19:41:04","slug":"create-lifelong-investment-plan","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/create-lifelong-investment-plan\/","title":{"rendered":"How To Create A Lifelong Investment Plan"},"content":{"rendered":"

Setting up an investment plan that will last for years is really a matter of a few simple filters. For instance, the\u00a0Brinson study<\/a> shows that your investment portfolio should be 93% stocks, bonds and cash.<\/p>\n

What percentages of each will be\u00a0the\u00a0big, overarching investment plan\u00a0decision you\u2019re going to make.\u00a0It’s\u00a0going to tell a financial advisor what reasonably to expect from a portfolio over time, and what you can live on in retirement.<\/p>\n

Some studies even show that asset allocation, what investments you own and in what amounts, in fact\u00a0determines 100% of your return. Meanwhile, stock picking\u00a0and market timing<\/a> are net negatives, so don\u2019t bother.<\/p>\n

\"lifelong<\/p>\n

As a rule, cash really has no role in a portfolio except for\u00a0emergency needs\u00a0or psychologically for comfort. If anything goes wrong, having some cash means you can pay for it. You don\u2019t have to sell any of your investments\u00a0to raise money.<\/span><\/p>\n

Own bonds for anything that\u2019s a fixed amount that\u00a0you need to pay sooner; that’s your “five years or less” money. Assuming you have your liabilities covered and sufficient emergency money, the rest should be invested in stocks.<\/p>\n

Even so, fixed-income investments, typically bonds, are\u00a0really just a volatility dampener. Keeping\u00a0cash also can be\u00a0a volatility dampener.<\/p>\n

That\u2019s why people\u00a0need a financial advisor, so that the market’s ups and downs don’t\u00a0bother them\u00a0psychologically, and to make sure that you have planned for your spending needs.<\/p>\n

Given all that, how do you invest in equities<\/a>? Consider these three categories: U.S., developed international and emerging markets stocks. <\/span><\/p>\n

That\u2019s the next level of diversification. Now, within those areas, you\u2019re going to have three choices for stock investing: value or growth, large or small, active or passive.<\/span>\u00a0<\/strong><\/p>\n

In the end, how you diversify doesn\u2019t matter as much as that you are diversified. People get crazy with pie charts, but we already know that stocks will beat bonds and cash. <\/span><\/p>\n

U.S.-domiciled companies probably make 50% or 60% of their money overseas, so you own a lot of effectively international equities by default. Accordingly, it might not be worthwhile to overweight international holdings. <\/span><\/p>\n

We have a good capitalist system in this country and rule of law, so there’s no reason to own a lot of foreign stocks. Plus, if you own the S&P 500, you already have a lot of diversification anyway.<\/span><\/p>\n

Left to their own devices, however, people often own too much large-cap dividend paying stocks and they don\u2019t own enough small cap and not enough in international and emerging markets.<\/span>\u00a0<\/strong><\/p>\n

Remember, dividend-paying stocks are not risk-free. People forget that companies can\u00a0go under or stop paying dividends<\/a>.\u00a0Dividends get cut, it happens. <\/span><\/p>\n

A passive investment plan<\/h2>\n

Passive investing is likely\u00a0the best approach, and the benefit that doesn\u2019t get talked about it is what it does to your behavior as an investor. <\/span><\/p>\n

One of the great benefits of owning broad index funds is that in effect you are saying, “Okay, I\u2019m not going to time the market. I\u2019m not going to pick investments. I\u2019m not trying too hard.” <\/span><\/p>\n

That’s a behavioral help for the investor; there\u2019s much less buying high and selling low. But it’s not risk-free.<\/span><\/p>\n

In 2008, for instance, some people still panicked out of index funds. It\u2019s investor behavior that keeps people from retiring, not that a\u00a0fund performed a little less than the stock market index<\/a>.<\/span><\/strong><\/p>\n

MarketRiders, Inc. is a registered investment adviser.\u00a0 Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.\u00a0 Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and\/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.<\/i><\/small><\/p>\n","protected":false},"excerpt":{"rendered":"

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