Investors without a plan often construct portfolios by evaluating the merits of each investment or fund individually. If the evaluation is positive, they add the investment to their portfolio, often without considering whether it fits.
Common mistakes include buying funds with good recent performance in the hope that it will continue, or trying to time market peaks and troughs and buy and sell at exactly the right time.
Collecting top-performing funds and trying to time markets can result in a portfolio that contains more risk than you’re willing to take, or a portfolio with little chance of achieving your investing goals.
You can avoid this mistake by working through your current situation and setting some reasonable goals, along with a plan based on your unique circumstances. Below you can find some of the items that such a plan may include.
Item |
Here’s what you need to know. |
|
Investment objective |
How much money you need to achieve a goal, such as retirement. |
|
Time horizon |
The number of years you have to reach the goal |
|
Risk profile |
The level of risk you are willing to take to achieve your goal |
|
Savings rate |
How much you can invest at the start, and regularly thereafter |
|
Asset Allocation |
The broad mix of investment types you’ll use to achieve your goal. Professional investors call this ‘asset allocation’ |
|
Monitoring |
How your portfolio is going to be monitored and adjusted to keep it near its asset allocation target. |
There’s no reward without risk. This familiar lore is as true of investing as it is of anything else in life. You can’t control what happens in the markets, but understanding the historical patterns of equities and bonds can help you handle risk in your own portfolio and select the balance of investments that is right for you.
Whatever investments you choose, you increase your chance of outperformance by focusing on those with lower fund costs. That’s because the lower the charges, the more you get to keep of any return the funds achieve. Remember that fund costs are incurred regardless of fund performance.
Although the asset allocation decision is one of the cornerstones of any investment strategy, it only works if you stick to it over time and through varying market environments.
Important information on investment risks
Investing involves risks. The value of the investments and the resulting returns may rise or fall, and investors may suffer losses on their investments.
Important risk information
Past average returns are no reliable indicator of future investment results. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Important information
Vanguard Investments Switzerland GmbH only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the product(s) described in this document, please contact your financial adviser.
The information contained herein is not to be understood as an offer or solicitation to make an offer to buy or sell securities in any jurisdiction where such an offer or solicitation is unlawful, or to persons to whom such an offer or solicitation may not legally be made, or when the person making the offer or solicitation is not qualified to do so The information does not constitute legal, tax or investment advice. You should therefore not rely on the content when making investment decisions.
The information contained in this document is for educational purposes only and is not a recommendation or solicitation to buy orsell investments.
Published by Vanguard Investments Switzerland GmbH.
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