Know your time horizon

Are you closing on a house in a month? Are you saving for retirement expenses 20 years down the road? You should ensure your short-term and long-term asset allocations match your short-term and long-term expense projects. The longer the time horizon, the more aggressive, or riskier your portfolio can be. 

Woman reaching

Understand your required rate of return

What are safe, target, and reach goals? Do you need to achieve 15% annualized returns to meet your retirement goals? If so, then you don’t need better investments. Rather, you need to cut down on your expenses. Saving more, and sooner, is the surest way to improve your chances of reaching your long-term financial goals. It is better to have more money working for you. 

Understand your drawdown tolerance

How do you feel when the stock market drops 20%? If that bothers you, then it’s probably a good idea to work with a professional advisor. Working with a professional advisor can help provide reassurance that you’re doing the right thing. More so, a professional advisor can explain the perils of selling when things are down and trying to time the market.

Big wave surfing

Map out good, bad, and neutral scenarios

How does your situation change if the economy booms? If your industry falters? What happens to your investments in either of those situations? Will you need to draw from your savings? It’s always a good idea to review potential scenarios once or twice a year by using a table like the one below: 

Scenario Income Investments Draw from assets?
Booming economy Up Probably up, unless interest rates rise swiftly Not necessary. Perhaps sell some stocks to renovate the bathroom if things are way up.
Neutral Steady Probably up No. Stay the course.
Recession Steady Probably down. Time to cash in recession hedges. Unlikely, but possible.
plot of compound returns

Don’t ignore compounding returns

A 5% return on $100,000 is $5000. A 9% return on $100,000 is $9,000. That’s a $4,000 difference. A 5% annual return on $100,000 compounded over 30 years yields $432,000. A 9% annual return on $100,000 compounded over 30 years yields $1,326,000. That’s nearly a $900,000 difference. Start investing early, invest more, and leave your long-term investments in high growth assets.

Hedge your bets

Can you buy insurance against a catastrophe? Can you limit your downside? Are there tools you can use to mitigate your risks? With INDEX+, we use leverage and Treasury bonds to hedge long-term growth investments against the risk of economic crisis.