FINANCE & INVESTING
By Don Freeman
Building and Managing Your Portfolio Is Step #3
In my prior articles, I talked about planning for
retirement and then managing your retirement. The key is getting to the
end goal, and that’s to have a worry-free retirement. Once you’ve gone
thru the steps, all that’s left is to build and manage your portfolio.
Portfolio management is perhaps the most critical aspect to any
retirement. With the help of a trusted adviser, it’s actually quite
simple and doesn’t require too much time or effort. With many of my
clients, we meet and evaluate the portfolio on a quarterly basis. Some
wish to not even meet that often and prefer to meet just once a year.
Either way, the key to success is to develop a diversified portfolio,
create a plan and stick with it through the ups and downs of the market.
The key to building your portfolio is with low-cost ETFs and US traded
blue chip stocks. I recommend the low-cost ETFs from Vanguard. Vanguard
has been around since 1975 and manages over $2.4 trillion in client
assets. I don’t know of a safer or more dependable firm for me or my
The first thing to think of is separating your long-term goals from your
short-term goals. Remember, investing is for meeting long-term goals and
saving is for meeting short-term goals. The risk of a decline in stock
and bond prices is something to consider for money that you may need in
the short-term. Investing in the stock and bond markets is for money
that you need many years from now. That’s why asset allocation according
to your long-term and short-term goals is extremely important.
The second thing to think of is diversification. You don’t want all your
eggs in one basket. You want to own several different ETFs that limit
your overall risk or a diversified stock portfolio which invests in
healthcare, industrials, materials, energy, and the technology sectors.
Not everything goes up or down together. By being diversified, it
reduces your risk profile, which is very important in retirement.
When you diversify, you are choosing the right mix of assets for your
portfolio. In other words, what percentage should you have in stocks and
which percentage in bonds. Then of these percentages, how much should be
in growth stocks, value stocks, dividend stocks, long-term bonds,
short-term bonds, corporate bonds, tax-free municipal bonds, government
bonds, corporate bonds, etc.
Well, how do I determine my percentages? There are a number of factors
to take into consideration when determining your portfolio allocation.
Factors include age, objectives, time horizon, cash-flow needs, and
finally, your risk tolerance. How much risk do you want to take with
your portfolio? Some clients just want to protect the principal and live
off the income. Others want to have more stocks and look to build their
portfolio. Again, it all comes down to what is right for you. Not
everyone is alike and we all have different circumstances. That’s why a
custom portfolio that is right for you is so critical.
Once, we determine your percentages, we turn to buy-and-hold index funds
from Vanguard. The reason we do this is to keep costs low. One thing
that eats away at a retirement is high fees. Minimizing costs help you
keep more of what you earn. Anyone that has dealt with commission sales
people know what I’m talking about.
In my next series of articles, I’ll get more into the types of stocks
and exchange-traded funds (ETFs) I recommend and how they can help your
portfolio grow. As always, remember it’s never too late to start
investing. The key is developing a custom plan that’s right for you.
Feel free to give me a call, email or Skype and we can discuss that
custom plan for you.
Don Freeman is president of Freeman Capital Management, an independent
US Registered Investment Advisor. He has over 15 years experience and
provides personal financial planning and wealth management to
expatriates. Specializing in UK and US pension transfers. Call
089-970-5795 or email: [email protected]
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