Checks For Investments: When To Write

Writing a check for an investment requires following the standard procedure for writing a check. This includes adding the date, the name of the recipient, the amount in numbers, the amount in words, and your signature. However, it is important to note that checks are typically not written against savings accounts due to federal regulations prohibiting this. Therefore, when writing a check for an investment, it is likely done from a checking account or a money market account. While money market accounts have some similarities to savings accounts, they offer more flexibility and may allow a limited number of checks to be written each statement cycle. It is also crucial to ensure that you have sufficient funds in your account to cover the amount of the check to avoid any issues with insufficient funds.

Easy portfolio rebalancing

Rebalancing is a way to bring your portfolio back to your original asset allocation mix. It is important to keep an eye on your investments and adjust your strategy to maximise your profits. For example, if you initially wanted a 50/50 split of shares and bonds, you may find that due to market movements, your portfolio has shifted to 80/20 in favour of shares. This means that your risk level has increased, and you may want to make adjustments to get back to your initial split.

There are several methods for rebalancing your portfolio:

• Calendar-based rebalancing: This method designates a frequency, such as quarterly or yearly, for resetting the portfolio back to the target asset allocation.
• Threshold-based rebalancing: This method is triggered when a portfolio's asset allocation changes by more than a certain threshold. A drawback of this method is that it requires regular monitoring and may not be practical for those who manage their own portfolio.
• Calendar- and threshold-based rebalancing: This approach combines both rebalancing methods. Based on a calendar frequency, the portfolio is rebalanced if its assets have strayed by more than a specific percentage from the target allocation.

It is recommended to rebalance your portfolio annually, but the frequency depends on your investment style. If you are a long-term investor, checking your portfolio too frequently may be detrimental as you will witness short-term fluctuations that could lead to rash decisions.

There are also tools and services available to help with rebalancing your portfolio, such as robo-advisors or digital investment platforms that will manage your portfolio for you.

When rebalancing your portfolio, it is important to consider the potential tax consequences. Rebalancing may result in buying or selling assets, which can have tax implications. To avoid this, you can consider buying more of the asset classes that have decreased in value instead of selling assets. Additionally, consider your total portfolio allocation across all accounts and treat all your assets as one investment portfolio to optimise tax efficiency.

Right risk level maintenance

Understand Risk and Risk Tolerance

Risk, in financial terms, is the chance that an investment's actual returns will differ from the expected outcomes. It includes the possibility of losing some or all of the original investment. It's important to understand your risk tolerance, which is your comfort level with uncertainty. Different investors have different risk profiles, and it's crucial to assess your willingness and ability to take on risk. Age, income, investment goals, liquidity needs, time horizon, and personality all play a role in determining risk tolerance.

Diversification

One of the most effective strategies for managing risk is diversification. By spreading your investments across various asset classes, industries, sectors, and companies, you can reduce the impact of specific risks associated with individual investments. Diversification helps to ensure that your portfolio is not overly exposed to any single risk factor and can provide a more stable foundation for growth.

Regular Risk Assessment

Conduct regular risk assessments to identify and quantify the risks associated with your investments. This involves analysing historical behaviours, standard deviation, and other metrics to understand the volatility and potential for losses. By doing so, you can make more informed decisions about adjusting your portfolio to maintain the desired risk level.

Rebalancing

Rebalancing involves bringing your portfolio back to your original asset allocation mix. Over time, the performance of different investments can cause your portfolio to drift away from your intended allocation. By rebalancing, you ensure that no single asset class or investment dominates your portfolio, helping to maintain a comfortable level of risk.

Long-Term Perspective

It's important to take a long-term perspective when investing. Short-term fluctuations and market volatility can be distracting and lead to impulsive decisions. By focusing on long-term goals and adopting a disciplined approach, you can avoid the temptation of frequent portfolio checks and knee-jerk reactions. Remember that investing is a marathon, not a sprint.

Seek Professional Advice

If you're unsure about maintaining the right risk level, consider seeking advice from financial advisors or experts in the field. They can provide guidance based on your specific circumstances, risk tolerance, and investment goals. Additionally, automated investment services and robo-advisors can assist in monitoring and adjusting your portfolio to maintain the desired risk level.

Reaffirm investment strategy

Reaffirming your investment strategy is a powerful way to give your investment portfolio a fresh start. It is a strategy that converts your investments quickly and automatically into ones built on sound investment principles.

Have a Clear Goal in Mind:

Ask yourself: What do you want to achieve by reaffirming your investment strategy? Do you want to improve participant investment allocations? Are you overinvested in certain areas? Are your current investments aligned with your goals, age, and risk tolerance? Having clear goals will help guide your decision-making process.

Evaluate Your Target Date:

Consider whether your investment strategy is appropriate for your time horizon. For example, if you are nearing retirement, you may want to adjust your asset allocation to protect your retirement income.

Communicate for Impact:

Don't keep your plans a secret. Communicate your intentions early and often to make a positive impression and energize those involved. Explain the benefits of your strategy and how it will help achieve their goals. Use various communication channels like newsletters, texts, and even on-site meetings to encourage participation and engagement.

Plan, Fund Evaluation, and Execution:

Work with a financial professional to design your reaffirmed investment strategy. Evaluate your current investments, fund performance, and future prospects. Make any necessary adjustments to your investment mix, keeping in mind the level of risk you are comfortable with.

Monitor and Adjust:

Remember that your investment strategy should not be set in stone. Regularly review and adjust your strategy as market conditions change and as your personal circumstances evolve. Stay informed about economic trends, industry developments, and seek advice from trusted financial advisors.

By following these steps, you can effectively reaffirm your investment strategy, ensuring that your investments remain aligned with your financial goals and risk tolerance.

Avoid daily or weekly checking

Checking your investments daily or weekly can be detrimental to your investment success. Firstly, it increases your stress levels. The stock market is up 53% of the time and down 47% of the time. If you check your account daily, you will see negative numbers almost half the time. This can make you feel like your portfolio is performing worse than it is.

Secondly, checking your investments too often can lead to knee-jerk reactions and impulsive decision-making. Research shows that the more frequently investors monitor their portfolio, the riskier they perceive investing to be. This is known as myopic loss aversion: when investors constantly check their investments, they become more sensitive to losses than to gains.

Thirdly, checking your investments daily or weekly may not give you an edge over other investors. It is unlikely that you will gain an advantage by doing something that millions of other investors are doing. In fact, by focusing on daily price changes, you may miss out on medium-term signals in longer-term data that could be more valuable.

Finally, there are better uses of your time. Instead of checking stock prices, you could be creating a written investment plan to help you reach your financial goals.

In conclusion, to avoid the negative consequences of daily or weekly checking, it is advisable to review your investments as little as possible.

Seek professional assistance

Seeking professional assistance when making investment decisions is a wise move, especially if you're short on time or knowledge about investing. Here are some detailed instructions on when and how to seek professional investment advice:

When to Seek Professional Advice:

• If you're experiencing a significant life event that impacts your financial situation, such as a career change, inheritance, marriage, or retirement, it's a good idea to consult an investment professional.
• When you're looking to invest in stocks, bonds, or other financial products beyond a traditional savings account, professional guidance can help you navigate these more complex investments.
• If you're seeking a comprehensive roadmap for your long-term financial goals, a financial planner or adviser can provide valuable expertise.
• If you feel you don't have the time or knowledge to make informed investment decisions, it's worth considering hiring an investment professional.

How to Choose an Investment Professional:

• Start by asking your family, friends, and colleagues for recommendations. Personal referrals can be a great way to find trusted and reliable investment professionals.
• Conduct an online search of the recommended professionals and their firms. Look for qualifications, credentials, and any potential red flags, such as criminal records or disciplinary actions.
• Ensure that the investment professional and their firm are registered with the U.S. Securities and Exchange Commission or a state securities regulator. You can use the BrokerCheck tool to research professionals who sell securities or provide advice.
• Ask key questions to assess their suitability for your needs, such as their experience, qualifications, investment philosophy, services offered, fees, and potential conflicts of interest.
• Be cautious of high-pressure sales tactics and unsolicited communications making exaggerated claims. Take your time and don't feel pressured to invest before you're ready.

Types of Investment Professionals:

• Registered Financial Professionals: These professionals buy and sell securities for their clients and are regulated by FINRA and the SEC.
• Investment Advisers: They provide tailored advice about securities to their clients and are regulated by the SEC or state securities regulators.
• Financial Planners: They offer a range of financial services, including investment advice, financial planning, and retirement planning. Their regulation and licensing depend on the services offered.
• Insurance Agents: These professionals sell insurance policies and products, including life, health, property insurance, and annuities. They are regulated by state insurance commissions.
• Accountants: Accountants assist with taxes, financial planning, tax reporting, auditing, and management consulting. They are regulated by national and state licensing standards.
• Lawyers: They offer legal advice and assistance related to financial planning, investment decisions, and disputes with financial firms or professionals. Lawyers are regulated by state bar associations.

Remember, it's crucial to do your research, ask questions, and understand the fees and services provided before engaging any investment professional.

Frequently asked questions