NEW YORK (MONEY Magazine) -
The price of neglecting your portfolio is high: If you don't pay attention to your investment mix, you can end up with too much risk. If you don't save regularly in the first place, you'll certainly fall short of your goals.
Solution: Automatic investing
To combat investing amnesia, make it automatic. First, have a system for saving regularly. Funding your 401(k) or other workplace retirement plan is the simplest one because money is withdrawn from your paycheck before you even see it (and before taxes are taken out).
You can also set up an automatic investment program with any bank, brokerage or fund company.
Once you're putting money away, settle on an asset allocation. For the majority of working-age investors, leaving 60 percent in stocks and 40 percent in bonds will do. (To fine-tune a portfolio for your age, goals and risk tolerance, use our asset-allocation tool.)
Review your portfolio once a year and rebalance if your allocations are off by 10 percent or more. By doing so, you'll automatically sell your winners and invest more in cheaper sectors -- in other words, buy low and sell high. Many 401(k) plans and brokerages will rebalance for you automatically if you want.
A way to do all of this in one step is to invest in a target-date retirement fund such as Fidelity's Freedom funds (800-343-3548) or T. Rowe Price's Retirement series (800-638-5660). These funds offer an allocation appropriate for your expected retirement date and adjust the mix annually.
Just be aware that such funds are meant to be your only holding; other investments will skew the mix. (For more on these funds, see "Recipes for Retirement", by MONEY senior editor Walter Updegrave.)
Investment: 30 minutes to sign up for automatic investing; an hour a year to rebalance.
The payoff: Lower risk and better returns
Problem 8: Over-insured and under-efficient.
|
