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4 investment strategies to protect your portfolio and achieve gains


How physicians can optimize their investment behaviors and make sound, long-term decisions.

Protecting an investment portfolio sounds like avoiding risk, whereas achieving gains sounds like embracing risk. Are the two objectives in conflict?

READ: 7 overlooked tax breaks

Accomplishing both at the same time is not primarily about being good at picking stocks or other investments because statistically, those performing at the top today will likely not be there in a few years. Instead, having success on both fronts at the same time is mostly about the behavior of the investor.

The best decisions regarding development of an investment portfolio can be negated by neglecting behavioral disciplines. Following are some important behaviors and related philosophies which, when implemented, do a pretty good job of supporting both objectives. 

1. Pre-deciding

You will benefit tremendously by deciding at the start, and for the long term, exactly how much money you will invest in order to achieve your long-term financial goals.

As everyone with a job has experienced, once you start earning money, lots of people are lining up to take it: the mortgage provider, the car dealer, the grocery store, cable company, the timeshare, etc. Investment success starts by adopting the discipline of paying yourself first.

The amount of investments you wish to have in the future will only be achieved over time and through a systematic and regular plan.

Clearly, time is the key element to compounding. It is also the key element to smoothing out investment returns and achieving a good long-term result without taking unreasonable risk. It is difficult to think of a goal in life of any great significance that is accomplished without pre-deciding. Reaching investment objectives is no different.

Deciding the exact amount of money you would like to have at a specific point in the future and the exact amount needed to reach your goal is absolutely necessary to achieving it. Of course, the decisions about how to invest are important too, but not as important as pre-deciding and investing with discipline.

Next: Dollar-cost averaging


2. Dollar-cost averaging

This is a close cousin to pre-deciding and builds on the idea of smoothing out investment results over a long period of time.

Dollar-cost averaging is about consistently investing the same amount at regular intervals. For example, if you are investing each month in shares of a particular stock, in the months when the shares are trading at a relatively higher price per share, your money will purchase fewer shares, whereas in months when the shares are trading at a relatively lower price per share, your money will buy more shares. In other words you are “buying low.”

This approach is designed to eliminate the gamble that comes with market timing. Conversely, by investing larger amounts less frequently, it is more likely that you will make an investment when the security or market you are investing in is trading at a high point.

3. Using a capable financial advisor

From the standpoint of behavior, “capability” in a financial advisor-the person or firm you rely on to help you achieve your long-term goal-is not all about his or her own investment acumen.

The current investment world is more complicated than ever, and good investment decisions require specialization across sectors and strategies. Consequently, it is very difficult for one person to know everything. It isn’t just about U.S. stocks and bonds anymore. We are functioning in a much different, more globalized economy than was the case just a few decades ago.

Technology is driving investment infrastructure as well. Now an individual investor with $100,000 (or less in some cases) can have a separate professionally-managed account of individual securities.

Only a few years ago, a capable investment manager wouldn’t have even considered separate account management for a client with less than $1 million. Exchange Traded Funds (ETFs) offer a more favorable cost structure and trading flexibility compared with traditional indexed mutual funds. New diversification strategies are coming into vogue all the time.

In addition, each investment manager has his or her own preferred investment strategy: strategic, passive, active, tactical, indexing, alternatives, etc. Very overwhelming, isn’t it?

The point here is that in modern times, the capable advisor is not trying to be an expert in everything. He or she is first focused on working with you to create a carefully designed plan that will develop a net worth in line with your objectives for your lifetime and legacy.

Second, instead of watching a stock ticker all day long, your advisor should be researching and vetting investment managers and products. As you evaluate advisors, if a focus on planning is lacking or if he or she alone is the “stock picker,” then you may want to keep looking.

Next: Stick with your plan


4. Stick with your plan

Putting together a sound plan will help keep you focused. It will help you avoid wavering and getting off course when you want to chase after the latest “hot” investment that was part of the conversation at last night’s cocktail party.

A good investment plan is somewhat analogous to a football playbook. The game is run based on established plays that have been designed for specific situations. If you have an investment playbook, when the economic environment around you changes, or for any other reason you think a change of course is wise, then you have an established platform for evaluating and making changes to your plan. 

New plays generaly are not created during the game, and changes to your long-term investment strategy should not be made hastily or in the heat of the moment. Instead, take the time to carefully consider and adjust when necessary, but always work from your plan.

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© National Institute for Occupational Safety and Health
© National Institute for Occupational Safety and Health
© National Institute for Occupational Safety and Health
© National Institute for Occupational Safety and Health
© National Institute for Occupational Safety and Health