Is it possible, do you think, to accidentally build a house upside down?
It could happen, I guess. If you didn’t know what you were doing. If you got bad advice. Or if you didn’t have a set of blueprints to work from.
Obviously, at some point, though, you’d notice something was terribly wrong.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
When you’re building your financial house, the mistakes you make can be a lot harder to spot. But the idea is the same: It’s always best to work with a plan.
Lay the foundation
It’s important to start with a solid foundation built with “safe money,” such as Social Security and a pension, which can provide a steady and reliable source of income. And if those two income streams aren’t large enough when combined, you may decide to shore things up with an annuity. Think of the foundation as mostly — but not completely — replacing your salary, the income you’ve had all your life. It should be stable and dependable.
Build the walls and roof
Next are your walls, made up of conservative investments. They might be subject to some volatility, but they’ll stand up to most storms. Sometimes they’ll bend and sometimes they’ll break, but most of the time, they’ll help keep you protected.
And then, of course, comes the roof, which is made up of your more moderate- and high-risk investments. The more effort you put into care and maintenance, the better off your financial house can be. Still, this part of your financial portfolio may be the first to go when things get turbulent.
Unfortunately, I see upside-down financial houses all the time, and often the people who own them have no idea the precarious state they’re in. Because the marketplace puts a priority on equities and people are taught to chase returns, all the money goes there, instead of into a well-laid-out portfolio.
Go back to the blueprint
How can you fix an upside-down house?
Diversification is the key.
There are 13 asset classes, and an investment that does the best in one year typically won’t repeat that performance in the next. That’s why it’s important to own a mix of stocks, bonds and cash, diversified across different market caps and styles. This can help spread your risk, because you’ll own a variety of asset types that may perform differently from one another in any given time period.
If you’re looking at the periodic table of asset classes, which ranks asset returns as measured by global market indices, I recommend that clients stay in the middle range, with investments that have been ranked No. 5, 6 or 7 over the last 20 years. Not No. 1, but not 13, either.
Now, this isn’t to say that you won’t ever lose money — remember, your walls may bend or even break. But you may experience less loss of your investment if you go with this approach. And I have been telling my clients for years that when it comes to investing, you win by not losing big.
If you want to have a good, upstanding house with a strong foundation, sturdy walls and an adequate roof, you need financial advice and strategies that utilize a diversified portfolio. A financial professional who is held to the fiduciary standard can furnish you with a personalized detailed blueprint to get you started — or help you out if you’re standing in the middle of a leaky fixer-upper.
Kim Franke-Folstad contributed to this article.
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Roberts Wealth Management are not affiliated companies. Investing involves risk, including the potential loss of principal. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.
-
I'm a Financial Pro: This Is How You Can Guide Your Heirs Through the Great Wealth TransferFocus on creating a clear estate plan, communicating your wishes early to avoid family conflict, leaving an ethical will with your values and wisdom and preparing them practically and emotionally.
-
To Reap the Full Benefits of Tax-Loss Harvesting, Consider This Investment Strategist's StepsTax-loss harvesting can offer more advantages for investors than tax relief. Over the long term, it can potentially help you maintain a robust portfolio and build wealth.
-
Social Security Wisdom From a Financial Adviser Receiving Benefits HimselfYou don't know what you don't know, and with Social Security, that can be a costly problem for retirees — one that can last a lifetime.
-
Take It From a Tax Expert: The True Measure of Your Retirement Readiness Isn't the Size of Your Nest EggA sizable nest egg is a good start, but your plan should include two to five years of basic expenses in conservative, liquid accounts as a buffer against market volatility, inflation and taxes.
-
New Opportunity Zone Rules Triple Tax Benefits for Rural Investments: Here's Your 2027 StrategyNew IRS guidance just reshaped the opportunity zone landscape for 2027. Here's what high-net-worth investors need to know about the enhanced rural benefits.
-
The OBBB Ushers in a New Era of Energy Investing: What You Need to Know About Tax Breaks and MoreThe new tax law has changed the energy investing landscape with expanded incentives and permanent tax benefits for oil and gas production.
-
Ten Ways Family Offices Can Build Resilience in a Volatile WorldFamily offices are shifting their global investment priorities and goals in the face of uncertainty, volatile markets and the influence of younger generations.
-
Should Your Brokerage Firm Be Your Bookie? A Financial Professional Weighs InSome brokerage firms are promoting 'event contracts,' which are essentially yes-or-no wagers, blurring the lines between investing and gambling.
