Develop your own '2020 vision'.
Consider adding these resolutions to your list of housecleaning, fitness and leisure time goals.
1. Learn to save more. A portfolio of stocks purchased in 2000 and left untouched has likely lost some of its value--and may continue performing sluggishly for the next several years.
Clearly, great stock market expectations can't form the basis of your long-term financial strategy.
Saving more of your income makes sense for two reasons. Most importantly, substantial savings can cushion you from suboptimal portfolio returns. What's more, having cash lets you take advantage of potential bear-market bargains.
After all, what good is a single-digit sale price on that once-skyrocketing blue chip if you don't have the funds to buy it?
2. Work on your balancing act. As investors tentatively duck in and out of the markets, volatility will likely persist. That's why it's wise to build and maintain a mixture of stocks, bonds, cash and other investments in your portfolio that is in line with your long-term financial strategy.
Market shifts can easily disrupt your allocations. For instance, when stocks nosedived in 2008, your portfolio's equity weight likely shrank as your allocation to bonds or cash expanded. In that case, a December 2008 rebalancing could have helped keep you on track--and in line to potentially benefit from the mighty comeback that began in March 2009.
But rebalancing makes sense in calmer markets too. When you rebuild assets that have lost ground and liquidate a portion of appreciated assets, you're more likely to reap the benefits of a buy-low/sell-high scenario.
Financial advisors can work with you to help you develop a rebalancing schedule, along with a strategy for adjusting asset allocations as you respond to market fluctuations.
Home sweet home
3. Protect your home's value. Borrowing against a home or any other core asset is a useful financial tool, when done judiciously. But when home prices surged early in the last decade, many homeowners saw home equity loans as a safe means of financing everything from home improvements to a second honeymoon in Barcelona.
Now, with most real estate markets having experienced a precipitous fall in value, many otherwise prudent investors have learned that with great returns also come great risks.
Bottom line: you can't do much about market rates, but you can certainly maintain as much of your home's liquidity as possible by borrowing against it with discretion.
The next 10 years could be a decade of uninterrupted prosperity or economic hardship--or anything in between. But regardless of economic and market conditions, sticking to this trio of financial fundamentals can help you achieve your most important goals.
Donald E. Sommese is a financial advisor at Morgan Stanley Smith Barney located in Manchester, and may be reached at 603-629-0233.
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|Title Annotation:||Personal Finance|
|Author:||Sommese, Donald E.|
|Publication:||New Hampshire Business Review|
|Date:||Jan 28, 2011|
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