5 Steps to Get Yourself Invested

August 26, 2014

stocksbondscashMost investors need a balanced portfolio that includes both stocks for growth and bonds for stability. Investors who have balanced accounts may be able to ride through and benefit from the stock market’s ups and downs.

A classic balanced portfolio has 60% invested in stocks and 40% in bonds. This 60/40 mix has been effective through many market cycles, as we explained here.

How can you build a balanced portfolio? Follow these five steps:

1. Start with fixed income

You can invest the fixed income portion of your portfolio right away. Bonds have typically had lower drawdowns than stocks so you’re less likely to experience a severe sell-off just after buying into bond funds.

2. Invest in equities gradually

Get a substantial portion of your equity exposure invested (at least 30-50%) right away so you’ll have the opportunity to participate in the gains, and then space out your subsequent purchases over time. We suggest if you are getting back in the market, focus first on core diversified equity funds or even balanced funds, which tend to be less volatile than more aggressive funds like sector or specialty funds.

3. Schedule your investments

Plan how you’ll invest the rest of your portfolio in to equities. You might choose to invest another 10% in equities each month. Or, if you want to try to use market declines to your advantage, you might commit to investing another 10% in equities every month or every time the market pulls back 5%—whichever comes first. But stay on schedule — don’t wait for the perfect day to buy, or you may never get invested.

4. Core, then explore

Once you’ve filled out your allocation to core stock funds, continue on to the more aggressive portion of your equity portfolio.  Keep investing until you’ve reached your target allocation—regardless of what happens while you’re building up your portfolio.

5. Fine-tune your allocation

Once you’re invested, you can tweak your allocation over time. If your stock exposure has grown too large, wait until an equity fund you own is slated to be sold and then use the proceeds of sale to add to your bond positions to get back to your original target allocation.

Need help? Call us at 1-800-763-8639 and ask to speak with an adviser.

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