With the recent up-side movement in the stock market, many folks are wondering what to do. Should I sell some of my positions? Should I buy more? These questions a based on two feelings that can destroy your portfolio: Fear and Greed! Timing the market has never been a productive venture, at least not for me, and I feel that I am smarter than the average bear when it comes to investing.
So what can we do during this up and down market that is prudent for our future?
1. Dollar cost average.
This is the single most important strategy that an investor can implement. This can be accomplished either through your retirement plan at work or in a taxable brokerage account.
2. Invest Tax Efficiently.
This suggestion runs in tandem with point #1. If you are contributing to a retirement plan such as a 401k or 403b, you are saving money pre-tax, which reduces your tax liability. Taxes can erode investment returns, so tax efficiency is paramount to long term growth.
3. Adjust your W-4 withholdings.
The more you contribute to your 401k, 403b, or other tax deferred retirement plan, the less taxable income you will show on your tax return. In a nutshell, increase your retirement contribution, decrease your tax withholdings, and you may not notice much change in your take home pay. But, you’ll be doing yourself a big favor….taking care of your future.
4. Remain committed to balance.
With the recent surge in equities (stocks) many folks may be tempted to invest more than they should into equities. This could be a dangerous proposition. Even thought the market has had a terrific run over the last couple of months it certainly doesn’t assure future stability. A commitment to balance through proper portfolio diversification will allow for portfolio growth while offering downside protection.
Remember that we are long term investors. This is not a sprint, for life’s financial journey is more of a marathon (hopefully without the heavy breathing and cramps!). Short term ups and downs are insignificant to our portfolio. We are in it for the long haul, and our focus should remain on our future goals.