Building a long-term investing portfolio includes defining goals, establishing asset allocation, and managing a portfolio. Here are tools to help.
As discussed in my last few articles (see links below), the process of building a long-term investing portfolio starts with defining specific goals, including your time horizon and risk tolerance. Next, choose your investments and develop your asset allocation strategy. Finally, monitor and manage your portfolio, including periodic rebalancing.
Not sure how to approach all that? Not to worry. There are plenty of resources to help you figure out goals, asset allocations, and portfolio management techniques. Let’s examine some of these tools and see how they can help you establish and manage a long-term investing portfolio.
Many investors start the process of planning a long-term portfolio by using a retirement calculator to help them refine specific goals. Dara Luber, Senior Manager, Retirement, TD Ameritrade, recommends the TD Ameritrade Retirement Calculator as a tool that can help you get started. Luber says, “To get started, locate the Retirement Calculator on our web site and launch the tool, following the instructions every step of the way."
To get a better grasp on your overall portfolio, you might consider gathering all your long-term assets. This means collecting statements for bank accounts, brokerage accounts, and retirement accounts.
"It can be beneficial to consolidate accounts to make management easier," says Luber. For example, you may have an old 401(k) from a previous employer, an IRA at the bank, and your current retirement plan from work. You can leave these accounts where they are, possibly consolidate them into your existing retirement plan, or move them all into a single account like a Rollover IRA.
Luber suggests checking out the Portfolio Planner tool. Luber adds, “For TD Ameritrade clients, this tool can help you determine your current asset allocation and help you decide if it aligns with your risk tolerance, time horizon, and goals."
The Portfolio Planner tool can also help you diversify within asset classes. Diversification is a technique that combines a variety of investments within a portfolio with the goal of garnering more stable returns without taking additional risk. It’s simply another part of asset allocation.
Once you’ve defined your goals, collected your assets, determined your asset allocation, and diversified your portfolio, you’re done with the bulk of the hard work. The next step is managing your portfolio, which involves periodic rebalancing to ensure your investments continue to align with your goals and risk tolerance.
Long-term investing starts with setting goals, and not just any goals, but SMART investment goals. Know what you want to get out of your investments and try to be precise. Next, make sure you allocate your assets according to your risk tolerance and time horizon.
There are numerous resources and tools to help you set goals, determine asset allocation, and manage your portfolio. Finally, risk management and a long-term perspective can help you stay on track. Remember, long-term investing isn’t about timing the market, but time in the market.
The information presented is for informational and educational purposes only. Content presented is not an investment recommendation or advice and should not be relied upon in making the decision to buy or sell a security or pursue a particular investment strategy.
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Before rolling over a 401(k) to an IRA, be sure to consider your other choices, including keeping it the former employer’s plan, rolling it into a 401(k) at a new employer, or cashing out the account value keeping in mind that taking a lump sum distribution can have adverse tax consequences. Whatever you decide to do be sure to consult with your tax adviser.
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