Market trends aren't the only thing to affect how well your investments perform. Here are six more factors that make a difference:
Before choosing taxable investments for retirement, "max out" contributions to tax deferred plans such as 401(k), 403(b) plans and IRAs. By postponing taxes, your earnings will grow much faster.
Asset allocation refers to how you divvy up your investment funds among categories such as stocks, bonds, and cash. It is a way of spreading your risk, of not putting all your eggs into one basket. Each person's ideal investment mix may be different.
Spreading investments across different industries; for example, investing in utility stocks and health-care stocks. Diversification can further reduce your investment risk.
Suppose you've invested 60% of your portfolio in stock funds, 20% in bond funds, and 20% in cash. Over time, as investment values change, these percentages can get out of whack. To bring them back in line, you can sell shares in categories that are "top heavy" or invest new money in categories that have fallen below your set percentages.
It's not always easy to "stay on course" when your investment values take a dive. Remember that investing is a long-term proposition--don't let temporary market downturns disrupt your long-term investment goals.
Instead of receiving cash, instruct a mutual fund or stock issuer to reinvest dividends and capital gains distributions in additional shares. Be sure to keep records of all transactions so you don't pay double taxes when shares are sold.
For more retirement planning and investment advice, e-mail a Provident Financial Consultant* or call (650) 508-7222 or (800) 656-4096. Provident offers a full range of Investment and Retirement Planning services.