There are 3 common myths people think of when looking at their investment portfolios.
Mistake #1:
There is an optimal portfolio to satisfy all
Reality: Time horizon is everything. Just because a stock/bond/fund might be good, doesn’t necessarily mean it’s good for you. It is important to acknowledge and address your time horizon, risk tolerance, and goals before designing your individual portfolio.
Mistake #2:
Cheaper is better over time
Reality: Focus on net ROI (return on investment) rather than just the cost. By doing continuous research, you are able to concentrate on real numbers by taking into consideration BOTH cost and performance.
Mistake #3:
“Diversification means owning a little bit of everything”
Reality: Utilize sector investing in relation to various business cycles rather than just looking at your standard style boxes. Also, understand that international equities isn’t a monolithic asset class, which makes picking the right managers even more crucial.
Creating a plan of action for portfolio management
There are certain steps that need to be addressed before managing your portfolio, such as:
Tax consideration for both retirement and non-retirement accounts. Controlling the tax liability in a non-retirement account can add significant dollars to your bottom line by utilizing techniques such as tax swaps and loss-harvesting.
Retirement accounts also have taxable situations like if/when to do a Roth conversion and when to draw from different types of accounts. Other strategies like backdoor Roth’s can be very useful when done correctly.