Keith D’Agostino understands that building a strong financial foundation starts with understanding the essentials of investing. Whether it’s saving for retirement, a home, or education, knowing how to approach your investments can make all the difference. With a steady approach, even small, regular investments can yield significant growth over time.
Financial advisors emphasize the importance of adopting a straightforward approach that aligns with your personal goals, risk tolerance, and the timeframe you plan to stay invested. Someone saving for retirement in 30 years will likely need a different strategy than someone planning to buy a home in five. Advisors often encourage people to think long-term, since short-term market swings can distract from the bigger picture.
Diversification and Risk Management
Diversification is a strategy that spreads investments across different asset types, helping reduce exposure to any single area of the market. Stocks, bonds, real estate, and other asset classes each respond differently to economic changes, which can help smooth out volatility over time. This is especially helpful during unpredictable economic phases when specific sectors may underperform.
A portfolio that includes a mix of assets is less likely to suffer significant losses during a downturn. If one segment underperforms, others may hold steady or even grow. This balance is why financial advisors often stress the value of not putting all your money in one place.
Maintaining a diversified approach doesn’t guarantee profits, but it does improve the chances of steady, long-term growth, especially when global markets become unpredictable. Investors who diversify tend to have more consistent returns and are better equipped to weather financial storms.
Consistent Investing with Dollar-Cost Averaging
Dollar-cost averaging involves investing the same amount of money at regular intervals, regardless of whether prices are rising or falling. This can be especially useful during volatile periods, as it helps avoid the temptation to time the market. It also reduces the emotional stress of deciding when to buy, since the process is automated and steady.
Keith D’Agostino explains that when prices are low, your fixed investment buys more shares; when prices are high, it buys fewer. Over time, this can help lower the average cost per share, potentially improving returns. Someone investing a portion of their paycheck each month is already applying this principle, often without realizing it.
The Case for Index Funds
Index funds have become a go-to choice for many financial advisors due to their simplicity and low cost. These funds aim to mirror the performance of a specific market index, such as the S&P 500, by holding the same stocks in the same proportions. This form of passive investing minimizes the need for constant decision-making.
Unlike actively managed funds, index funds don’t rely on frequent trading or expert predictions. This passive approach often leads to lower fees and, over time, has been shown to outperform many actively managed alternatives. A growing number of investors choose them as a way to capture broad market returns without the complexity or expense of constant oversight. Their transparency and tax efficiency also appeal to long-term investors seeking minimal surprises in their long-term financial planning.
Keeping Your Portfolio Balanced
Over time, the value of your investments can shift, causing your original asset mix to drift. Rebalancing helps realign your portfolio with your intended strategy by adjusting the proportions of each asset class to ensure it remains aligned with your strategy. If stocks have surged ahead, they might now make up more of your portfolio than planned, increasing your risk exposure. This imbalance can lead to greater losses if the market reverses.
Periodic rebalancing keeps your investments in check and helps maintain the level of risk you’re comfortable with. It’s not about chasing performance, but about staying aligned with your long-term goals. Many advisors recommend reviewing your portfolio at least once a year, or whenever significant life changes occur. A consistent rebalancing habit can also help you take a disciplined, unemotional approach to investing.
Staying Focused on Long-Term Goals
Market headlines can evoke strong emotions, especially during economic downturns. However, making decisions based on fear or excitement often yields poor results. Investors who stay the course tend to fare better than those who jump in and out, trying to time the market. Emotional reactions can undo years of progress in a matter of days.
Keith D’Agostino notes that the power of compound growth becomes more evident the longer you remain invested. Small contributions, when allowed to grow over decades, can build substantial wealth. Regular check-ins with a financial advisor can also help you stay grounded and focused on your financial future. Staying the course isn’t always easy, but it often yields the most rewarding outcomes.
