Editors note: This is a new feature where our readers can submit their investing or economic questions to author and investment guru Natalie Pace.
8 Basic Rules of Investing
Dear Smart Enough to Ask (Instead of Remaining Clueless):
There are tried and true rules of investing, and a few things that used to work, which no longer work.
You should always keep a percent equal to your age safe because as you get older you can’t afford the risk of the stock market. Then diversify your “at risk“ portion into small, medium, large, value and growth. I like to add in hot funds, as well, for improved performance. So, for instance, if you think that gold is hot, then have a slice of gold. If you think technology, China, Chile, Australia or another country or industry is hot, then have a slice of that, too. You really only need 10 funds to be diversified, and ten is easy to work with as a mathematical number. If you have pages and pages of stocks and bonds in your financial plan, then you have more risk and expenses than you realize, and you likely are not as diversified as you should be – despite all of the pages of investments.
Every year you get a year older, and your investments will have some gains or some losses. So every year it is a good idea to print out what you have in your 401(k), and mock up what you should have, based on keeping a percent equal to your age safe and diversifying into 10 funds. Then you simply make what you do have look like what you should have.
The cool thing about annually rebalancing your 401(k) and investments is that it is a plan that allows you to buy low and sell high on auto-pilot. When a slice is much bigger than it should be, then you sell a little (selling high) and get more into your safe side. When a slice is thinner than it should be, then you might buy a little more at a lower price (buying low), or you might replace it with another fund that might perform better.
Here are some sample nest egg pie charts.
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At my investor educational retreats, I teach you a few more very important tricks of the trade to fine-tune your investments. Call 310-430-2397 or email info @ NataliePace.com if you are interested in learning more about our Investor Educational Retreats.