Justina R. Welch, MBA, CFP® | Clint P. Thomas, MSF, CFP®

While there are hundreds of articles out there that will give you different advice on how to invest, keep in mind, your ideal financial portfolio is unique to you. Unfortunately, there is no one size fits all solution to creating an investment portfolio. There are, however, some essential concepts that apply to you no matter your circumstance.

Your ideal portfolio is based on your personal goals and circumstances

Your financial portfolio isn’t created in a vacuum. It is important to look at the big picture and create a portfolio based on your unique set of circumstances.

Factors to consider:

• Your age
• Your income and assets
• Your level of risk tolerance
• Your intended retirement date
• Your tax situation
• Your other financial goals (college funding, travel, second home, gifting, etc.)

Your personal financial goals and the rate of return you need to meet those goals will drive how your portfolio is constructed.

Balanced is better

The basic tenant of a well-diversified portfolio is to earn a moderate return over time without subjecting the portfolio to the huge up and down swings in the market. In other words, it will be a smoother ride, and while it may not be as exciting as the latest IPO to talk about at a cocktail party, we believe it is more likely help you achieve your financial goals over time.

There are many advantages to diversifying your portfolio.

A diversified portfolio that allocates across many different sectors including, cash, bonds, and stocks can take advantage of dips in the market by shifting gains out of well-performing sectors and moving into lower performing “on sale” sectors. Basically – “selling the winners, buying the losers”. Also, staying consistent with portfolio rebalancing helps maintain your risk exposure over time and doesn’t let the portfolio get too out of alignment.

Another advantage diversifying your portfolio into other areas of the market such as U.S. and overseas stocks, large and small companies, emerging and developed markets is to help lower the portfolio’s volatility (ups and downs). In addition, by adding low-correlating asset classes, such as real estate, commodities, and other alternative strategies that don’t move in lock step with the broader market, it can also help the portfolio’s overall risk/reward characteristics.

You’re in it for the long game

Creating an investment plan and portfolio isn’t about short-term gains and losses – it’s about making a strategic plan based on your long-term goals.

You want to be diversified because even if a particular market is doing well now, you don’t know what will be doing well down the road. This may seem like a humble, and quite frankly, boring way to invest, but it works over time. You want to be diversified all the time because no one can consistently time the market.

For example, if you look at the calendar year 2016, large companies in the U.S. did very well, but overseas stocks didn’t do that well. So, if you were to base your 2017 investments on that and put everything into the U.S. stock market, you would have been disappointed, because the overseas stock market has outpaced the U.S. stock market so far in 2017. The winner last year may not be the winner next year and vice versa. It’s best to stay diversified and focus on your long-term goals rather than chasing the market.

Are you unsure if your portfolio is diversified appropriately? Contact us for a free risk assessment of your portfolio.