Hire an Investment Advisor or Go It Alone?

After reading Rick Ferri’s recent Forbes article ‘Who Cares What The Dow Did Last Week?’ one may question the validity of hiring an investment advisor. With the numerous financial tools available to consumers today, individuals should feel more confident defining and implementing their investing strategy themselves by following his guidelines:

–Settle on an allocation between stocks, bonds and cash: Decide how much stock you wish to have in your portfolio over the next decade, assuming that you won’t be able to sell for the duration, and assuming that you’re likely to lose one-half the value at any given time during the decade. Keep enough cash to cover between six months and one year of living expenses.

–Diversify your holdings: Use various asset classes including US equities, developed foreign equities, emerging market equities, real estate (REITSs) investment-grade bonds and Treasury inflation protected securities.

–Choose low-cost, no-load mutual funds: Index funds and select exchange-traded funds (ETFs) are an ideal way to represent asset classes because they track the performance of markets very closely, less a small annual fee.

–Rebalance occasionally: Regular portfolio maintenance keeps risk in line with your target from Step 1. You can rebalance annually or as needed. For example, assuming a 50% stock target, you could rebalance when stocks hit 55% or 45%.

–Minimize taxes: Place tax efficient investments in taxable accounts and place less tax efficient investments in retirement accounts

So, when you sit down to work on your investment portfolio, think asset allocation, diversification and rebalancing.