Planning your retirement

© Johnkwan | Dreamstime.comSaving and investing for a comfortable retirement has never been more complex. The recent roller coaster ride has left many business owners and professionals agonizing over what to do next. Unfortunately, there are no simple answers.

One of the tried and true investing philosophies known as buy-and-hold (buying quality stocks and holding on to them during good times and bad) is no longer sacred in the minds of some financial advisers.

“Not only is buy-and-hold dead, it was never alive,” says Matthew Tuttle, president of Tuttle Wealth Management  in Stamford, Conn. “It worked from 1982 to 1999, but anything would have worked during that period.”

With no clear-cut consensus, that leaves it up to individuals to decide for themselves whether buy-and-hold makes sense in today’s economy. Fortunately, there are many other investment philosophies that still meet with near unanimous approval from the pros.

Diversification
Most financial advisers agree that asset allocation and diversification is one of the most important keys to successful investing in any economy. Allocating your assets skillfully among the various classes of investments is more important than your selection of individual stocks or mutual funds, the pros say.

So, what’s the best asset allocation? Should you put 10 percent of your portfolio in stocks, or 90 percent? What about the rest? Should you invest the balance in bonds, CDs or under the mattress?

For an asset allocation calculator that will help with this decision, visit www.forbes.com/tools/calculator/asset_alloc.jhtml.

Rebalance at Least Once a Year
As the prices of stocks in your portfolio fluctuate, the allocation ratio that you have established will change. If the total value of your stocks has risen, you may want to sell off some of them to restore your original ratios. If their value has dropped, shift more cash into equities to restore your formula.

If your investment portfolio is largely within an IRA, 401(k) or other retirement plan, consider rebalancing at least twice a year.

Maximize 401(k) Contributions
If at all possible, maximize your annual contribution to your 401(k) or other tax-deferred retirement account. At this writing, the maximum allowable contributions for 2010 have not been released; however, there are rumors that they may be slightly reduced from those of 2009. Should that happen, it will be the first time that contribution limits have been lowered.

Stick With Your Plan 
“Creating a plan and sticking with it under all market conditions is the way to maximize your returns,” says Jordan Kimmel of Magnet Investment Group in Randolph, N.J. “One helpful technique in this regard is called dollar-cost-averaging – putting the same amount of money into equities or mutual funds at regular intervals regardless of swings in the market. That way, when prices are higher, you are buying fewer shares; when prices are lower, you are buying more shares. Dollar-cost-averaging is an effective way to minimize the effects of emotion in financial management.” 

Never Trade on Margin
It seemed like such a wonderful idea, or so they thought back in 1929: Put up just a small percentage of the money you need to buy a hot stock and let your broker lend you the balance of the purchase price. Then, when the price goes up, sell the stock, pay off your loan from the broker and pocket the profit. With that kind of leverage, a rising stock market could make you rich beyond your dreams.

But what if the price of the stock goes down, in which case the broker may demand immediate payment of your loan? Now you have stock worth less than you paid for it and a huge loan that you must pay off. This has happened to more investors over the years than you could count.

As that old chestnut goes: The more things change, the more they stay the same. According to the most successful financial pros such as Warren Buffet, the world’s richest investor, common sense remains the best investment philosophy of all.

The author is a freelance writer based in Abington, Pa., with 40 years experience in business management and financing.