Some people buy investments here and there, every now and then. Others open an individual retirement account, put some money in it, then forget about it. But this type of haphazard investment behavior can lead to haphazard results.
On the other hand, here are five good reasons to create and follow a comprehensive, long-term investment strategy.
Reason No. 1: You want to enjoy a comfortable retirement lifestyle.
For most people, building resources for retirement is the most powerful reason to invest. As a key part of your investment strategy, you’ll want to consider investments that have growth potential.
The proportion of your portfolio devoted to these growth investments should be based on your individual risk tolerance and time horizon.
And, as you move much closer to your actual retirement date, you may decide to shift some — but certainly not all — of your portfolio from growth-oriented vehicles to those investments that can provide a reliable income stream and incur less volatility.
Reason No. 2: You need to stay ahead of inflation.
In the past few years, we’ve experienced relatively low inflation, but over time, even a low inflation rate can dramatically erode the value of your savings and investments. That’s why you may want to consider investments that provide the potential for rising income.
Reason No. 3: You need to help manage the unexpected.
You can’t predict what life will hold in store for you. To cope with unexpected costs, such as a major car repair or a new furnace, you’ll need to create an emergency fund containing six to 12 months’ worth of living expenses so you won’t be forced to dip into your long-term investments. And to deal with other major uncertainties of life, you’ll need adequate life and disability insurance.
Reason No. 4: You need resources for major life events.
Your retirement eventually may require the bulk of your financial resources, but it’s not the only milestone for which you’ll need to save and invest. You may need a down payment on a house, or you may want to purchase a vacation home. And if you have children or grandchildren, you may want to help them pay for college.
Reason No. 5: You’ll want to keep in mind investment-related taxes.
Taxes, like inflation, can eat into your investment returns. You’ll need to evaluate whether you can benefit from tax-advantaged investments and retirement accounts, such as traditional or Roth IRAs.
So there you have it: five good reasons to adhere to a unified investment strategy that’s tailored to your situation. This type of blueprint may not sound glamorous, and it’s certainly not a get-rich-quick formula, but it will help you stay on track toward your important financial goals.
Cardella is a consultant for Edward Jones in Hinesville.