Thinking about your investments can give you nightmares. Most people focus on events that impact their daily lives, giving their financial situation hardly a thought. Then, something happens—an event that makes them look at their investment decisions directly. The results can be frightening.
Do you dread seeing the envelope of your 401(k) or IRA statement? Do the words and numbers on the pages chill you as you realize you don’t understand what they mean? Do you lie awake at night looking at your half-opened closet door, wondering if your investment strategy will ever allow you to retire?
Well, get out of bed, pour yourself a glass of apple cider, scoop up your favorite black cat, and keep reading. I can help you create a strategy to keep investing from disrupting your sleep. Here are a few tips to keep the monsters away.
- Always work with a fiduciary. Your adviser should put your interests before his or her own. Unfortunately, a range of acceptable behaviors exists for different types of financial professionals. Additionally, recent changes to policy have muddied the water even further. Talk about a bad dream! A true fiduciary holds a legal standard, and you should ask anyone working with your money to agree to one in writing.
- Know what you own. Review your investment portfolio to be sure that you understand all your holdings. You probably own mutual funds, but remember funds are only wrappers. The investments inside are what matter. Do you own stocks, bonds, real estate, commodities, or other types of items? These categories have different risk/reward profiles, so dig into your holdings. You want to find any unexpected vampires.
- Keep your risk tolerance profile up to date. Sometimes, your situation changes—you get married, have a baby, or get divorced–and your investment portfolio might need to be adjusted. By keeping your risk tolerance profile current, your adviser will have the information he or she needs to make appropriate changes. You should have completed a questionnaire when you opened your account, but your answers may no longer apply. You don’t need them trailing you like zombies, derailing your financial goals.
- Know the costs. Everyone gets paid, and all investment products have fees associated with them. You should know whether your financial professional receives a commission, gets a fee, charges an hourly rate, or is paid a combination. Additionally, I don’t think there’s anything wrong with asking about their level of compensation. Further, look at the costs associated with any annuity, mutual fund, exchange-traded fund, or other financial product. They can be hard to find, so put on your Sherlock Holmes cap, get your magnifying glass, and read the prospectus!
- Participate in your company’s retirement plan. Retirement is expensive. Not only are general costs high, but care for the final years of your life can set you back hundreds of thousands of dollars. Even worse—you could be living in retirement for as many years as you were saving for this stage of your life. With advances in medical care and the advantage of safe living conditions, assuming you retire at 65, you could be in retirement for 30 to 35 years! That could be as many years as you were funding the retirement account. Cue Janet Leigh’s scream of horror in Psycho. To help write your own happy ending, participate in your company’s retirement plan, especially if your employer offers a match. Additionally, talk to a CERTIFIED FINANCIAL PLANNERTM practitioner to determine how much money you will need in retirement.
Once your investment plan is in place, you may find that the horror you were experiencing was just a bad dream brought about by stress. Don’t you feel better? If only there wasn’t something sneaking up behind you……