Fall Financial Check-In: How Balanced Is Your Portfolio?

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published 17 August 2024

If you are new to investments, it can be hard to know where to start in the process. While there is no perfect science to building an investment portfolio, it is important to remember that investing is not a “set it and forget" strategy. Conducting regular check-ins with an adviser can help ensure you’re making the most of your investible assets.

Fall is a great time to do just that, and like or not, it is coming fast. Take a moment to assess your financial standing and consider the various factors that might impact your portfolio: short- and long-term goals, changes in income and tolerance for risk. Working with a financial adviser is also a great strategy to help manage your assets and understand the factors that go into building a balanced portfolio. Having this understanding will only strengthen your collaboration with the adviser to help assess any life updates or changes as needed.

Below are four considerations when building a balanced portfolio:

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1. Asset allocation

It’s important to understand basic asset allocation — the variety of different assets you can have in your portfolio, such as stocks, bonds and cash, alternatives and the role they play. Consider maintaining a healthy mix of these in your portfolio to help you achieve your goals.

Remember that the performance of these assets varies over time, so diversifying your investments may help reduce the risk level in your portfolio. However, there is no guarantee of success or loss prevention.

2. Investment timeline and phases

Understanding investments means understanding their phases. This typically includes:

The planning phase. Setting the stage for understanding options available to an investor in terms of security selection.
The accumulation phase. Bringing to life the planning done previously and is the longest phase in the cycle.
The distribution phase. Triggered upon retirement or in the years leading to retirement.
The legacy phase. Typically one of the most ignored sections of personal financial planning, investors work backward and try to attain their legacy and retirement goals by focusing more on the accumulation phase.

Most of the cash inflow into your investment pool happens during the accumulation phase, which typically lasts 35 to 40 years. Ensuring that you allow enough time for your investments to grow is key to effectively balancing and allocating your portfolio.

You typically need at least a full market cycle (generally three to five years) to participate in equities — money that is invested in a company by purchasing shares. So, consider setting your target allocation — allocating for profit and loss — and look to rebalance your asset allocation at least annually, depending on the size of the portfolio.

3. Implementing and monitoring your allocation

For long-term retirement success, work with a financial adviser to create your own investment policy statement, which is a document outlining general rules and guidelines for the management of your portfolio.

Investors should lay out clear guidelines to keep their target allocations within range for the various asset classes and avoid distractions from new get-rich-quick schemes.

4. Tailoring your distribution

This is based on your risk tolerance and financial goals, like retirement and other life milestones.

With retirement, for example, you are required to withdraw 4% to 5% annually from traditional qualified retirement plans starting at age 73 to satisfy your required minimum distribution (RMD).

As you near the distribution phase, adding income-generating investments to your portfolio may be beneficial. You will still need to keep in mind the importance of growth in your portfolio, so you shouldn’t abandon your equities completely. Your asset allocation, for example, might change from the 60% stocks/40% bonds model or even 30% bonds/70% stocks model, depending on your risk tolerance.

To avoid knee-jerk reactions to changes in the market, set clear target allocations and don’t deviate from them — it’s important to stay the course. Remember, it’s not timing the market that matters most, but rather your time in the market.

While there is no one-size-fits-all approach for investors, finding balance comes with strategic planning. Account for your risk tolerance and consider your financial plans, goals and potential changing needs.

If you don’t know where to start, get in touch with a financial adviser or visit wealthmanagement.citi.com.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Judith “Judi” Leahy is a Senior Wealth Advisor based out of Rye, N.Y., with more than three decades of experience in financial services. She earned the Certified Investment Management Analyst (CIMA) designation with the Wharton School in 1999, extending her ability to construct efficient portfolios using a diverse range of investments including equities, tax free and taxable fixed income, annuities, options and alternative investments. Since joining Citi as an advisor in 2006, Judi’s concierge-style guidance and personalized advice have led to strong client trust and relationships.