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Sometimes investors need to think big: how to build a smart portfolio, how to avoid mistakes and reach for time-tested principles. Here to discuss investing ideas is Christine Benz, Morningstar’s director of personal finance and retirement planning.
This interview has been edited for length and clarity.
Are you playing too safe with your portfolio?
Q: What are the signs that an investor is taking too much risk or playing too safe with his allocation?
A: People The age of 50 can be used as a hard cut-off as to whether they should care about taking too much risk. I feel quite complacent among the elderly. As we age and become more resilient in the face of ups and downs, we feel more risk-tolerant, but our actual ability to absorb risk has decreased.
The last significant sustained economic recession was 17 years ago. It makes sense to be mentally prepared and do so in advance, rearranging your portfolio to make way for safer assets.
Why you shouldn’t let recency bias determine how you invest in the markets
Q: What mistakes do you think investors are making? Especially when we are in a bull market, as we have been for the past few years, despite some volatility earlier this year.
Answer: It’s that novelty, the tendency to believe that what we’ve seen in the market will stick. Another mistake is to rush into the hottest part of the market. There is a tendency among AI-related companies and Big Tech names to believe that their returns will remain phenomenal. They can be great companies long term, but you have to be prepared for downdrafts from time to time. AI companies are a basket of higher quality companies than they were in the late 1990s. Still, you want to protect yourself, and you don’t want to get stuck with those companies at the expense of everything else.
Yours portfolio is the same bar of soap: the More The closer you touch it, the smaller it will be
Q: What tips do you have for investors who struggle to keep their emotions under control when investing, whether the market is going up or down. Should investors really adopt a set-it-and-forget-it mentality?
Answer: Most investors like to keep in mind the idea that your portfolio is like a bar of soap, and the more you touch it, the smaller it will get. It’s not my creation, but I like that metaphor—try keeping your hands off your portfolio.
I believe a good review of the portfolio once annually is sufficient. You can pay attention to some of the demonstrations going on in the market. We all live and work in the economy, so it’s hard to get it right. But to the extent that you are making changes to your portfolio, try to use the investment policy statement to guide your changes. Conduct a once-annual review where you look at performance. See if rebalancing is in order, see if a tax-planning trick might make sense, whether it’s a charitable donation or a donation of appreciated securities. Not spending too much time moving around will likely benefit long-term portfolios and planning.
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This article was provided to The Associated Press morningstarFor more personal finance content, visit https://www,morningstar,com/personal-finance
Christine Benz is the director of personal finance and retirement planning for Morningstar.
Susan Dziubinski is an investment expert for Morningstar and co-host of The Morning Filter podcast.