5 steps for woke investing

If your goal is saving to buy a house
next year, putting your down-payment in the stock market could be a
disaster.  Sure, you could gain 10-20% in
a year, but you could also lose that much. 

the other hand, never investing in the stock market could mean you fall far
short of what you need for retirement.
do you make sense of investing?  This post
is here to help. 

Never invest emergency
savings in the stock market. Suze Orman



1 – Match
risks to your time horizon

you put part of your pay into a 401(k) plan at your company, you are
investing.  And when you save money to
buy a house, you are investing. 
Different investments have different risks.  If your goal is saving to buy a house next
year, putting your down-payment in the stock market could be a disaster. 
The risk does not match the horizon.  If the stock market is volatile, it goes up
and down.  If you can stay invested long enough,
the ups outweigh the downs.
So, when you have a short-term horizon, less than
three years, you need investments that have little or no risk to
On the other hand, if your goal is saving for
retirement, leaving your money in a savings account will be a disaster.  Sure, your principle is safe.  But, you took no risk, so the funds did not
grow much. 
When you can wait at least 5 to ten years, then
investing in the stock market is preferable because well-diversified
investments tend to go up over time. 

2 –
Diversify investment types

Buying one stock could give you huge returns, or
lead to a complete loss. 
Diversifying means allocating your investments to
different categories: stocks, bonds, real estate, raw materials, etc.  These categories respond differently to
economic events, so an investment that goes down can be offset by one that goes
up.  You allocate portions of your
investment among investment categories to reduce your overall risk.  That helps protect your against a major loss
on any single investment. 
You will also want to diversify within
categories.  For stocks, you look at
value and growth investment styles, large, mid and small-cap companies, and US stocks
and international stocks.
Okay, now we are making it sound complex.  You may want to get advice, either from a
financial planner, broker or good robo-planner who can help create and asset
allocation suitable for your goals.  

3 – Allocate
and then rebalance periodically

Once you diversify, you
need to review the allocation among investments at least annually.  Otherwise, the allocation could get way off

Check to make your mix of
investment by category still fits your goal. 
If your allocation is off, rebalance it by selling the excess of
investments that performed well and buying the investments that have been
underperforming.  Good investments may
lag at times, so rebalancing helps you to maintain the proper allocation to
stay on track. 

4 –
Dollar-cost average – sometimes

Worried that the market is
too high, that stocks could tumble?  Emotions
such as fear, as well as excitement or greed can lead to bad investment
One way to address fear of
a correction is to dollar-cost average. 
This means adding new funds to your investment allocation by investing
the same amount of money on a regular basis, e.g. once a month for six months.   

5 – Keep
costs down

What about costs?  You generally want to avoid loads and other
forms of broker commissions whenever possible. 
And you want to select investments that have low fees. 
Make your investments at a discount
broker, on line or via an app, and
Use exchange-traded funds
Have any questions? 
Let us know, we’d love to help you stay woke about investing. 
Have any questions? 
Let us know, we’d love to help you stay woke about investing.