What Is Your Biggest Fear When It Comes to Investing?
Ryan Sullivan, PE
I Craft Personalized Wealth Blueprints for Architects and Engineers | Engineer Turned Financial Planner
Welcome to this week's edition of The Weekly Trail Report, where we share,
1 Story, where real stories of architects and engineers meet tailored financial strategies,
1 Actionable Tip, to provide actionable insights and guide you towards financial success,
1 Financial Term, to demystify key concepts and empower your decisions.
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1. Story: Eric Has FOMO
What is your biggest fear when it comes to investing?
For many, it's the fear of missing out on potential returns. Eric, a talented engineer, shared this concern. When we first met, he had a diverse set of investments but felt uneasy about whether he was maximizing his returns.
“I feel like I’m just throwing darts in the dark,” he confessed during our initial consultation. “I know a bit about investing, but I’m not confident I’m doing the right things.”
I nodded, understanding his predicament. “Let’s take a look at your portfolio and see if we can bring some clarity to your strategy.”
As we reviewed his investments, it became apparent that while Eric had some solid assets, they lacked a cohesive strategy. He had a target date fund in his 401(k), single stocks in his brokerage account, and a handful of index funds spread across his IRAs. Individually, these were not bad choices, but together they didn't form a unified plan.
“You have a lot of good pieces here,” I told him. “But without an overall strategy, it’s like having a bunch of puzzle pieces that don’t fit together.”
“So what should I be doing?” he asked, clearly eager for a solution.
“We need to create an overall asset allocation that aligns with your goals and time horizon,” I explained. “Think of it as designing a building. You wouldn’t start construction without a blueprint, right?”
Eric nodded, his engineering instincts kicking in.
We then set to work. First, we assessed his risk tolerance and time horizon. Given that he had a good 20-30 years before retirement, we determined he could afford to be more aggressive with his investments.
Next, we created a holistic strategy that spread his risk while maximizing potential returns. We balanced his portfolio with a majority of equities, a bit of cash, and some alternatives, ensuring diversification across different asset classes and sectors. This new allocation was then replicated across all his accounts, bringing cohesion to his investments.
As we finalized the plan, Eric looked relieved. “This makes so much sense,” he said. “I feel like I finally have a clear path forward.”
“That’s the goal,” I replied with a smile. “Investing shouldn’t be about guesswork. With the right strategy, you can confidently pursue your financial goals.”
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And with that, Eric’s fear of missing out transformed into the confidence of a well-crafted investment strategy.
2. Actionable Tip: Regularly Review Your Portfolio
Life happens, and it can be easy to forget about your investments working in the background. As you change jobs, it’s common to lose track of different accounts, causing asset allocations to become outdated over time. This can lead to a scattered investment strategy and inefficiencies. By regularly reviewing and optimizing your accounts, you can eliminate these inefficiencies and improve your overall investment performance.
To ensure your investments are always working towards your goals, make it a habit to review your portfolio regularly. This means setting aside time at least once a year to assess your asset allocation, performance, and overall strategy.
During these reviews, consider the following steps:
? Check Your Allocation: Ensure your investments are still in line with your target asset allocation. Market movements can shift your allocation over time, so you may need to rebalance.
? Evaluate Performance: Look at the performance of each investment. Are they meeting your expectations? If not, investigate why.
? Adjust for Changes: Consider any changes in your life circumstances or financial goals. Has your risk tolerance or time horizon changed? Make adjustments accordingly.
? Stay Informed: Keep up with market trends and economic indicators that could impact your portfolio. Staying informed helps you make better decisions.
Regularly reviewing your portfolio helps you stay on track, make informed adjustments, and ensure your investments continue to align with your financial objectives.
3. Financial Term: Rebalancing
Rebalancing is the process of adjusting your investment portfolio to maintain your target asset allocation. Over time, market movements can cause the value of your investments to shift, potentially increasing your risk.
Why is rebalancing important?
1. Maintains Risk Level: Keeps your portfolio’s risk in line with your financial goals
2. Enforces Discipline: Encourages buying low and selling high
3. Optimizes Returns: Ensures your portfolio stays diversified and balanced
When to Rebalance:
Periodically: Review and rebalance your portfolio quarterly or annually
Threshold-Based: Rebalance when an asset class deviates significantly (e.g., by more than 5%) from your target
Steps to Rebalance:
1. Assess Allocation: Review your current asset allocation
2. Compare to Target: Check against your target allocation
3. Buy and Sell: Adjust your holdings to realign with your target
4. Consider Costs: Be mindful of transaction fees and tax implications.
By regularly rebalancing, you ensure your investments remain aligned with your goals, helping you achieve long-term success.
Happy Trails,
Ryan
Disclaimer: We employ fictional characters to illustrate financial concepts faced by individuals in the architecture and engineering industry. Any resemblance to real persons, living or dead, is coincidental. While the stories are inspired by our experiences, the specific details, circumstances, and outcomes mentioned are entirely fictional and created for educational purposes only. Real client information is strictly confidential and never disclosed without explicit consent. Our aim is to provide relatable examples for educational purposes, respecting the privacy and confidentiality of our clients.