A good handyman has many tools on his belt and even more in his truck. He can complete various jobs with these tools, but different tools have different functions. For some jobs, he will need a screwdriver; other times, he’ll need a hammer, saw, paintbrush, or lawnmower.
Your portfolio is the same way. You will have many assets in your investment toolbelt such as stocks, bonds, mutual funds, CD’s, government bonds, and ETFs. Within these you will also want to diversify according to U.S., international, market capitalization, sector, and industry. When one asset zigs, another zags. When your stock allocation is down, your bonds and real estate holdings are up. When your real assets are lackluster, your equity holdings are performing well. You can construct a well-oiled machine to accomplish your myriad investing goals.
Perhaps you’ll sell an investment property for a large capital gain one year. This would be a good time to also sell a stock that you’ve lost money on, as these capital gains and losses will offset each other. If your income is low one year, this would be a good opportunity to sell an asset that has appreciated. As you gain more experience, you can invest with finesse to ensure optimal returns and minimal taxes. This will require you to either put in the time to learn how each of these courses of action affect the others or to work with a professional financial planner.
Growing your wealth through investing is much more complex than simply putting money in a savings account or buying index funds. There are complicated tax and risk-adjusted return calculations to execute. If you educate yourself, construct an investing strategy, and execute the plan with consistency, you will succeed. If you’d rather delegate these calculations and decisions to someone else, then you can hire an advisor, but make sure their goals align with yours.
For help building your best investment portfolio schedule a free consultation with us at American Financial Planning. Call or email today!