A finance industry leader for more than 26 years and father of 18-year-old triplets, Adam Taback understands the importance of planning for the future. Since 1993, the Chief Investment Officer for Private Wealth Management of Wells Fargo Wealth and Investment Management has worked with dozens of high-net-worth and ultra-high-net-worth clients to help them develop strong investment portfolio strategies.
Although appetites for risk vary and personal goals can differ greatly, Taback does see some common denominators when it comes to the actions these investors take in order to create an appropriate investment strategy.
Like Taback, Tracie McMillion, Head of Global Asset Allocation Strategy for Wells Fargo Investment Institute, has more than 20 years of investment industry experience. Together, they outline six of these actions and habits that all investors should keep in mind.
1. Create specific financial goals
To build a portfolio, begin by asking what you ultimately want to accomplish. “Ask yourself: ‘What’s my objective, and what would I like to do with my life?’” McMillion says. “The smartest thing you can do is start by knowing what you hope to achieve as an investor.”
From seeking potential income in retirement to passing along wealth to your children and grandchildren, knowing where you’re going financially is crucial to determining the investment path to seek to get there.
2. Consult with an investment professional
Share your objectives with your investment professional and work together to create a plan to reach them. A detailed consultation requires you to be prepared with some specific knowledge. “Understand how soon you need access to money and whether you’re looking to generate growth or income from your investments,” advises McMillion. Armed with that background, your investment professional can evaluate scenarios for your investment plan, creating a portolio that aligns asset mix with your goals.” For example:
- Equities such as stocks can help provide potential growth opportunites over a long-term horizon.
- Fixed income vehicles such as bonds can help provide a measure of stability.
- Real assets (e.g., commodities and real estate) can help provide potential ongoing income and a hedge against inflation.
- Alternative investments (i.e., hedge funds, private equity) can help offset potential volatility.
3. Give your investment strategy regular tuneups
Taback and McMillion say successful investors tailor their investment strategies to fit their personal tolerance for risk—and they have a clear understanding of the impacts on their portfolios. But they also revisit their risk tolerance on a regular basis to help make sure their investment strategy stays aligned.
Your risk tolerance is determined by factors including your investment goals and experience. (Learn more about personalizing your investment portfolio.)
Keep in mind that those objectives may change over time, as well, such as if your family grows or you’re starting to think more about charitable giving. Plus milestones that come with reaching various stages of life can affect your investment strategy. “Don’t operate on a set-it-and-forget-it investment strategy,” Taback says. “Set and reset is a wiser approach.”
4. Keep an “all-weather” (diversified) portfolio
No one can predict with 100% accuracy what the markets will do or how events like state and local elections might impact the economy. But successful investors actively guard against potential risk by diversifying their portfolios, no matter their age, Taback says.
Diversification can help you limit your exposure and manage your liquidity—giving you the ability to address both current and future financial needs. Taback recommends considering maintaining some exposure to each of the four major asset classes mentioned above. That way, if one area underperforms, another may help balance it out.
5. Maintain a global range of investments
The U.S. only represents around 15% of global gross domestic product and 4% of the world’s population, says McMillion, who points out that international assets provide ample opportunities for growth—and successful investors are willing to look beyond the U.S. borders. “Domestic assets have performed better over the past few years, but many global assets are becoming increasingly well-priced, and many are paying higher dividends,” she notes. “Going forward, investors should consider looking beyond America’s borders for growth.”
6. Stick to a long-term plan, even in the face of uncertainty
Geopolitical and economic volatility can often lead to rollercoaster-like rises and dips in the market. But those events do little to move the needle over longer time periods, says Taback, and successful investors know that they are often better-served by embracing a more patient, long-term approach.
“Don’t focus on random calendar-year performance,” Taback says. “Rather than think of winning as a zero-sum game, look at it in terms of finding ways not to lose.” He adds that smart investing isn’t about being fixated on breaking headlines or trying to time the market. “It’s about building and maintaining a well-balanced portfolio that can help you reduce risk on the downside while also increasing opportunities to participate in growth,” he says, “potentially leading to markedly better results over time.”
