Is Your Portfolio “Healthy”?
May is National Physical Fitness and Sports Month. If you can exercise regularly, you’ll help yourself feel better, control your weight and even reduce the chances of developing certain diseases. But why not extend the concept of “fitness” to other areas of your life – such as your investment portfolio?
And to help maintain a healthy portfolio, you can draw on some of the same principles that apply to keeping your body in good shape.
Consider, for example, one of the things that happen when you exercise – namely, your body uses more oxygen. As an investor, you may need your portfolio to get “oxygen” in the form of infusions of new investment dollars. If you stop putting money into
your portfolio, you’ll need to rely on your existing investments to grow enough to help you meet your long-term goals, such as a comfortable retirement. Could that happen? Maybe, but you will likely be better off by investing consistently, year after year. And
by spreading your contributions over a period of decades, you don’t have to come up with large sums at any one time.
Another element important to exercise is the need to avoid injury. That’s why all sorts of athletes, both competitive and casual, stretch before they swing into action. Many of them also take other injury-avoidance steps, such as strengthening their “core” through abdominal work and increasing their flexibility through yoga. When you invest, you can be “injured” if your portfolio takes a hit during a market downturn. However, this type of injury will likely be much more severe if your portfolio is overconcentrated in just one asset class and the downturn primarily affects those exact assets. But if you own many different types of assets….
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