At the beginning of each year, people are filled with renewed optimism for the year ahead. It’s an opportunity to have a fresh start and a great time to set goals and resolutions. But alongside those goals of getting in shape, working hard, and spending less, there’s one area that you should focus on as well: your investments.
Investing is one of the best ways to build wealth and beat the cost of inflation. Your investments put your hard earned cash to work, to help stabilize your financial future.
And you can take 4 actions right now to get your investments in even better shape:
One of the easiest ways to invest is through a 401(k), especially if you are able to get a company match. But here’s the thing: Millennials are notorious job hoppers, moving from one job to the next.
There’s no shame in that either, but if you are leaving a bunch of old 401(k)s behind and not taking action, it’s time you consolidate your accounts.
Consolidating your retirement accounts can give you a clearer picture of your funds and help streamline your process. It also helps you avoid portfolio duplication and keeps your paperwork all in one place. Start by rolling over your account into your new employer-sponsored 401k or a separate Individual Retirement Account (IRA).
Rebalance Your Portfolio
Another key aspect to getting your investments in shape is to rebalance your portfolio. Rebalancing is the “process of realigning the weightings of one’s portfolio of assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation.”
Rebalancing is a form of checks and balances to make sure your asset allocation is where you want it to be. For example, if your target asset allocation was 70% stocks and 30% bonds and your stocks did well last year, your stock holdings may now be 80% of your portfolio. In this case, you may want to sell off some stocks and buy some bonds to get back to your original target asset allocation.
Review Your Budget
A budget is a living, breathing thing and should be evaluated as such. Life happens, and when it does, it’s time to review your budget.
Did you get a raise last year? Did your expenses go up? It’s important to look at your income to see how much money you are bringing in each month, as well as look at your expenses — what is going out each month.
This will affect your cash flow, which is essential to staying out of debt and managing your savings and investments. See if there are any budget leaks and if it’s possible to increase your retirement contributions.
(In addition, you can use extra money to purchase additional passively-managed assets and increase your portfolio.)
Never Stop Learning
To be a successful investor, oftentimes you need to adopt a set it and forget mindset. Buying and holding is a long-term investment strategy that can help you build wealth. It’s easy to get scared or fearful when the market is down and want to take action, but you have to remember investing is for the long-term.
To help quell fears around investing, never stop learning. Keep asking questions and seeking answers. Ask a pro to help you out, or check out financial blogs to get insight into other people’s experiences.
This year, commit to getting your investments in shape and your financial foundations strong and sturdy. Through investing, you are building wealth for the future and preparing yourself for the road ahead. Use these four tips to get started and track and modify accordingly.
How do you plan on getting your investments in shape this year?