The traditional ways of saving money aren’t enough anymore. Over the past few years, it’s more than likely that your portfolio took a huge hit, your house lost value and all the dollars you have tucked away for a rainy day lost value with each passing day. Whether you realize it or not, you’re getting burned. So it’s time to look at investing in a completely new way.
The old asset allocation models your stockbroker once promised would never lose money (how did that work out for you by the way?) are the way of the past, the “growth stocks” aren’t growing and the “value stocks” have lost their value. You need a new plan, and we have it for you.
Figure Out Your Risk Tolerance
Not everybody wants to skydive. Some people are content with low-risk, low-return investments, while others love the thrill of risking it all for the chance of making their money triple.
It’s easy to be seduced by visions of high returns, but take a little time to think about your risk tolerance. First, think about when you’ll need the money you’re investing, then think about how comfortable you are with risk. Finally, make sure your broker knows exactly what your risk tolerance is.
One way to get a good gauge on your risk tolerance is to use one of the risk tolerance tools that are available online. A simple Google search should turn up dozens of results.
Find the Right Broker
The major brokerage firms spend a lot of money on television ads telling you why they are the best, how they have the best tools and how they are the ones who will look out for you.
If that were true, the financial crisis we’re all recovering from wouldn’t have happened.
So, when you pick your broker, take everything they say with a grain of salt. Try to find someone you trust — someone you feel comfortable with and someone who isn’t going to push you into any investment(s) that you don’t feel comfortable with.
When scouting brokers, never gloss over an asterisk — especially when it’s placed next to an advertised deal. The fine print it refers to could mean that you’re signing up for higher fees than you realize.
Don’t be afraid to call the brokerage up and ask every question you have. Sometimes brokers talk like doctors or computer repairmen — they have their own language they strategically use to intimidate their customers. Keep them in check by writing down every question you have and checking them off only if you understand their answer completely.
Build Your Portfolio
We’re at the most important part of the process: Figuring out what stocks to invest in.
But first, we need to dispel a myth:
For decades, we’ve heard over and over how international investments should comprise no more than 5% or 10% of our portfolio’s total value — any more than that is foolhardy and risky.
Well, I’m here to tell you that advice is complete bunk!