EagleTribune.com, North Andover, MA


March 30, 2014

Building a sensible investment portfolio

Investing your savings to achieve your retirement goals may seem like a daunting task. It does not have to be. A well-designed portfolio is an important element for achieving a secure retirement. Although this portfolio will be different for each of you depending upon your individual circumstances, here are the fundamentals for developing an effective investment plan:

Be realistic. We cannot predict the future, so no one knows today what the ideal portfolio should be. We can, however, construct a sensible one that increases the chances of reaching your goals.

Identify the objectives for the portfolio. What do you want it to accomplish before retirement, during retirement and after you are gone? In addition to supporting your retirement expenses, are you planning to leave assets to family members or a charity? If so, how much do you want to leave?

Understand your risk profile. Your emotional and financial ability to accept short-term losses in exchange for expected but uncertain, longer-term gains should be determined before you make your investments. If you cannot sleep at night fearing a severe market drop or if a prolonged downturn would derail your chances of retiring when you want, a portfolio heavily tilted towards stocks may not be right for you.

Establish your asset allocation. The most important investment decision you will make is determining the portion of your investable assets you want in the three major asset classes of stocks, bonds and cash. This one decision will determine the majority of your portfolio’s performance.

Diversify through sub-asset and security selection. There are different categories of stocks (e.g. large company, small company, international, etc.) and bonds (corporate, government, municipal, etc.). Selecting the appropriate mix of categories and funds will enable you to further reduce the unnecessary risk in your portfolio.

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