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How to be smart with your portfolio

Christine Benz  |  08 Dec 2015Text size  Decrease  Increase  |  

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This article was originally written by Christine Benz, Morningstar's US-based director of personal finance. It initially appeared on Morningstar.com and has been edited to suit an international audience.


Too often, sell decisions are made based on the media. The first thing you need to do is tune out the talking heads on TV who purport to know what the market is going to do. Tune out the broker peddling the supposedly bulletproof securities du jour.

Realise that no one knows where the market is headed. And no successful investment strategy revolves around trying to guess the market's direction. So I wish everyone would just stop acting like that's a productive activity.

Now, maybe there's some a fund manager or well-known stock-market investor who has been able to call the highs and lows in this or that market with some regularity in the past, but I'd question his or her ability to do so in the future.

Simply follow these steps to maintain a sound portfolio.


Don't make hasty sell decisions based on macroeconomic news

Macroeconomic news, whether it's the direction of interest rates or GDP growth or news around the globe, often appears right alongside news about the market's trajectory. And it's true that what's in the headlines has the potential to move the markets up or down on a daily basis, or even over longer time frames.

The trouble is that by the time a certain news item makes its way into the headlines, other market participants have already digested it and priced it in. If you decide to sell your fund based on that news, you're likely to be too late.

Instead, a better tack for investors, at least as it relates to their portfolios, is to keep their heads down and focus on factors they can control: their savings and spending rates, the quality of their investment holdings, and the total costs they pay for those investments.


Find your true north

The bedrock of any sound investment strategy is creating an asset mix that makes sense for you based mainly on your age, your years until retirement and your risk tolerance.

Once you've come up with that, you batten down the hatches and make adjustments only if market action moves your allocation way out of whack with your targets; you'll also want to make your allocation more conservative as you get older.