No. 2: Cut your investment costs. In most walks of life, you get what you pay for. This is emphatically not the case when it comes to investment managers. Every year, 3 out of 4 active fund managers fail to outperform an unmanaged benchmark. Over periods of a decade or more, more than 95% of them underperform. Do you really want to pay hefty fees to someone with less than a 1 in 20 chance of delivering the goods? Investment fees and returns are inversely correlated. The more your advisor makes, the less you do. Or, as Vanguard founder Jack Bogle put it, in the world of investing you get what you don't pay for. This is particularly true in the fixed income arena. Ten-year Treasurys currently yield 1.04%, for example. If you plunk down for a bond fund with a 1% expense ratio, the fund will take nearly all of your annual income. That makes no sense. The goal is for you to get rich... not your broker, manager or advisor. No. 3: Rebalance your portfolio. The U.S. stock market just finished the decade in record territory. The S&P 500 has registered a total return of 198% since the beginning of 2010. That means you may now have more in equities than you'd be comfortable with in a serious market downturn. So rebalance your portfolio. Rebalancing means you sell back those asset classes that have appreciated the most and put the proceeds to work in asset classes that have lagged the most. This is a contrarian exercise. And it has a major salutary effect: It forces you to sell high and buy low. This adds to your long-term returns while reducing your risk. Yes, I tell traders to hang on to their winners and cut their losers short. But there is a big difference between short-term trading strategies and long-term growth strategies, between trading individual securities and rebalancing the asset classes that make up your portfolio. When it comes to asset allocation, you flip the script and sell back the asset classes that have surged and use the proceeds to add to the laggards. When the cycle turns - and the underperformers (like foreign stocks) become outperformers - you'll be glad you did. Good investing, Alex |
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