Vanguard BrandVoice: 4 Smart Ways To Find Balance As An Investor

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A wise man once said, “Aim for balance in all things.” Everything would be great, but let’s start with investing, where it’s important to find the right balance between risk and reward. A portfolio that is too risky can leave you vulnerable to large losses in a market downturn – but a portfolio that is not risky enough may not show much growth over time. You want the risk temperature of your portfolio to be just right for your goals and time frame. There are a few things to consider when you look for that ideal balance.

1. Be clear on your goals.

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At Vanguard, we believe that the successful investing journey begins with clear goals. They can be big goals, such as saving. retirement, University, or a advanced payment On a house, or they can be as small as some extra spending money at the end of each month. Your goals—and how quickly you want to reach them—weight heavily in determining what type of investment account you should open, and how risky the investments should be.

2. Set up or reset your asset mix.

Once you have goals in mind, your asset mix The most important investment decision you will make is.

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This is what determines the amount of investment risk you are taking—that all-important balance. You can invest in three major asset classes: stocks, bonds and cash. Your asset mix is ​​the percentage of your portfolio you want to devote to each.

Stocks are the riskiest investments, so a breakdown of 90% stocks, 10% bonds will result in higher risk than a portfolio holding 60% stocks, 30% bonds and 10% cash. Sometimes a stock-heavy asset mix makes sense depending on where you are on your timeline, especially if you want to give your investments room to grow. At other moments — such as when you’re approaching your target retirement age, for example — it makes sense to shift toward a safer mix that leans toward bonds and cash. Like self-portraits, your asset mix should reflect where you are on the timeline for your goals—and should change as you move forward in life.

3. Keep track of expenses.

Keeping your investment costs low means you’ll have more money to work with in your accounts so you can earn even more over time compounding, Otherwise, higher fees can eat into your earnings—and cause things to get out of balance. Let’s say you invested $100,000 in an account that yields 6% per annum for the next 25 years. Without the fee, you’d end up with about $430,000. But if you paid 2% fees every year for those 25 years, you’d only have $260,000.

Bottom-line? Avoiding additional fees is a great way to help keep your investments on track.

4, Think long term.

Another way to find balance as an investor is to go with a steady, disciplined investing approach. it means that think long When it comes to managing your portfolio – have a plan and stick to it, even during those anxious moments that sometimes go along with market volatility.

Market volatility is normal. But seeing the big picture can help keep your heart rate steady during the ups and downs. There’s a good chance that following a plan you created when your emotions were under control will put you in the best position to reach your long-term goals. Showing patience and discipline—finding balance—is not always easy, but can be worth it in the long run.

There is a lot that can be done in the investing world, especially if you are just starting out. We’re here to help you find the balance as an investor—and to make sure you have all the resources you’ll need.

Learn more about balance in investing

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