When the Fed raised short-term interest rates in December, did you feel obligated to buy, sell or change your investing strategy solely on that knowledge? The urge to make an investment decision is often influenced by media reports and the sentimental value you apply to those investments. This frame of thinking may lead you to make investment decisions based on your emotions, and in the long-term, emotional investing may prevent your portfolio from reaching its true potential.
Focus on the long-term. Check yourself for news-driven fear or euphoria before you call your financial professional. Remind yourself of what your long-term financial goals are, and ask yourself if making a change would help you reach them. If you still feel you need to make a change, ask your professional for their perspective.
Root out unfitting investments. Do you still have your first stock certificate from mom and dad? Shares inherited from a favorite aunt? Stock from an early employer? There are all kinds of ways to acquire stocks over the years, and over time, some investments may not “fit” with your overall investment goals. It can be hard to detach from stocks with an emotional connection, but like unruly branches in your backyard, portfolios need pruning on a regular basis to perform at their best. Portfolios and individual stocks should be evaluated periodically to determine whether they are still appropriate holdings given your time horizon, risk tolerance and overall portfolio. Keep in mind that sometimes no changes are warranted, but it’s a good habit to regularly review.
Strive for a balanced portfolio. Portfolios often need to be rebalanced over time, as your individual circumstances and the individual holdings’ situation changes. Take an objective look at your portfolio and ensure you are comfortable with the level of risk. If company stock options are available to you, make sure you’re aware of how that may impact your overall investment strategy. While it’s good to have confidence in your company, having too much stock in one company may expose you to more risk than you intend.
Be consistent. Counteract impulse buying and selling with a consistent approach to investing. Automated investing makes it easy to implement a disciplined approach, such as investing a set amount at regular intervals. This systematic investing can be a way to help minimize the effects of market volatility in a portfolio; however you will still need to review over time to make sure the strategy fits with your overall goals.
Embrace diversity. You’ll be in a better position to hang on to a sentimental favorite if the rest of your portfolio is diversified across a range of industries and assets. Diversity may provide balance in the event one or more sectors are down, but do keep in mind that diversity alone cannot protect against an investment loss.
Sell when the time is right. If you identify a loser that’s not likely to turn around, it may be advantageous to sell it now. Many investors continue to hold an investment with the hope that one day it will pay off to hold it. If you’re unsure about if you should cut your losses and move on, consult a financial professional who can give you an objective opinion.
Request a portfolio review. If you suspect your personal preferences and emotions are interfering with your investment decisions, defer to the experts. Ask a financial professional to conduct an objective review of your portfolio, with an eye to performance and your financial goals. Together you can look for opportunities to grow your earnings through disciplined investing strategies.
Larry Olivarez, Jr. CEP®, CRPC®, is a Private Wealth Advisor with Ameriprise Financial Services, Inc. in Corpus Christi, Alice, and surrounding areas of South Texas. He specializes in fee-based financial planning and asset management strategies and has been in practice for 13 years. To contact him please call 361.654.1900 in the Corpus Christi office located at 711 N Caranchua Suite #1701 or 361.668.1212 in the Alice office located at 604 E. Second St.
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