Putting Together a Financial Portfolio
Enjoying a secure retirement, paying for college and attaining other financial goals do not happen by accident. You need to have an investment plan/portfolio with specific goals, choose appropriate investments and check your progress along the way. Important considerations when building a financial portfolio include:
- Timeline - Are you working towards a short-term goal or long-term goal?
- Cash Flow - How much can you afford to invest every month? Consider having automatic deductions taken out of your paycheck to go into a retirement fund or other investments.
- Risk Tolerance - This includes your personal preferences as well as the timeline factor. When you plan far enough ahead, you can invest in more volatile options and then move towards safety as you approach your goal.
- Diversification - It is important to diversify investments to lower your overall risk.
- Insurance - Documentation on all life, disability and credit insurance policies should be included.
- Retirement Plans - Compile statements and details on 401k plans, IRAs, and Social Security statements.
- Investments - Include prospectuses, account statements, information on websites and who to call for questions.
Complimentary Financial Planning Assessment
Members of Dover Federal have access to a Complementary Financial Planning Assessment. For a no-cost, no-obligation meeting, contact the Dover FCU Investment & Retirement Center representative, John Kotzun, at
302-678-8356 to set up an appointment.
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As with many things in life, getting started with a savings and investment plan may be the hardest part. Do not put it off any longer! No matter what your current financial situation may be, you can start saving and investing with these common sense tips:
Slow and Steady Wins the Race
One of the most important concepts of investing is that time is your friend. The more time you have for your investments to grow, the more you will benefit from the compounding of interest. Even if you can only afford to set aside $10 out of every paycheck, it is important to start investing early.
Risk vs. Return
Another common sense principle to keep in mind is that your return on an investment will always be in direct proportion to the risk involved. If you are earning 1% on a savings account, that is because there is almost zero risk involved. On the other hand, if you are offered something that pays a high rate of return, make sure you understand all of the risks involved, and that you read the fine print.
Short-Term or Long-Term?
How long do you have before you will need access to your money? If you are nearing retirement, you will want to move your funds into safer, more liquid investments such as Share Certificate or a Money Market account. If you have several years (or decades!) to go, consider options that have historically performed well over the long-term: stocks, bonds and mutual funds.
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In a volatile economic climate, it is more important than ever to "stay the course" with your investment plans. Here are some tips to keep in mind:
Focus on Objectives
Are you saving for retirement? College expenses? Major purchases? Set investment goals and timelines, and choose investments that meet your criteria, then stick with your plan. For example, if you have 30 years until retirement, you can afford to take more risk by investing in the stock market. If you need money for college in 5 years, you will want to choose conservative, liquid investments.
Avoid Knee-Jerk Reactions to Market News
It is tempting when you hear bad economic news or a hot stock tip to buy or sell on impulse. Timing the market is best left to professionals. If you are an average investor, you will do better using dollar cost averaging. This simply means you invest a set amount each month in a particular investment or portfolio. That way, when prices are low, you will buy more of an investment; and when it is higher, you will buy less. Dollar cost averaging will help you avoid the risk of making a large investment and having the price drop right after your purchase.
Adjust Your Risk Profile as Needed
Consult your tax advisor to ensure that you are taking full advantage of tax-favored investment options, as well as any deductions you are entitled to for investment losses.
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