Don’t Let Your Investments Go on “Vacation”
Summer is here—and so is vacation season. Americans spend a lot on their summer getaways—more than $100 billion in 2017 alone, as reported in Travel and Leisure magazine. When you hit the road, you will enjoy getting away from your regular tasks, but there’s one part of your life that should never take a break—your investments.
To keep your investments working consistently and efficiently for you, consider these suggestions:
Match the right investment with the right “job”
You hire an electrician to install a light fixture, you employ a plumber to clear a clogged drain, and you would not expect either one to work on the other’s project. In a way, this view of a division of labor is similar to how you might look at different investments. In general, you purchase stocks with the hope of achieving the growth necessary to help you meet long-term goals, such as a comfortable retirement.
On the other hand, when you purchase certain fixed-rate investments such as certificates of deposit (CDs) or money market accounts, you know they won’t provide as much growth potential, but are available to fund a short-term goal—such as a dream vacation.
Evaluate investments’ performance relative to your goals
Some people think the only way to evaluate their investments’ performance is to track them against a well-known market index, such as the S&P 500. However, using an index as a measuring stick has some drawbacks, one of which is the lack of a personal connection to your situation.
Look at it this way: In many types of organizations, you typically go through performance reviews, where your work is assessed in terms of how well it helped you move toward your goals—and you can follow the same process with your investments. Specifically, you can measure their performance by how effective they are in helping you move toward your financial objectives.
For example, if you need your portfolio to provide you with a certain rate of return to meet specific retirement goals at a designated age, but you find that you are not currently on track toward meeting these goals, you may need to adjust your investment mix to potentially provide you with a higher return. Be aware, though, that seeking higher return potential will likely mean taking on more risk. You may want to consult with a financial professional to make sure you find a risk/reward ratio suitable for your goals and risk tolerance.
Look for hard-working investments
Some investments work especially hard. Some stocks, or investments containing stocks, pay dividends. Instead of taking the dividends, you can choose to reinvest them, purchasing even more shares—and increased share ownership is one key to helping build financial resources for the long term.
Dividend reinvestment is typically automatic, so once you have chosen this option, there’s really no extra work on your part. (Keep in mind, though, that companies are not obligated to pay dividends, and they can be reduced or eliminated at any time.)
In the investing arena, as in many endeavors, hard work can be rewarding. So look for opportunities to keep your investments gainfully employed throughout your life.