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When you’re choosing investments, use your own personal goals as benchmarks. Make sure your portfolio is aligned with you and your future.
A diversified and balanced portfolio of investments is how most people plan and pay for major milestones - by choosing investments that work specifically for education expenses or buying a home or transitioning to retirement or other big goals.
But make sure your portfolio is tailored to you. Not everyone is investing for the same things. You may not have homebuying or tuition on your radar. So your portfolio should be designed to reach other goals.
Get to know your investment options. Work with a professional advisor or use Bright for investments that fit your personal goals.
The most common start point for investing is a mutual fund. If your employer offers a 401(k) or other retirement plan, you’ve probably encountered and even chosen a mutual fund.
A mutual fund is a portfolio of investments that pools your money with other investors to purchase a selection of stocks, bonds and other securities. It’s professionally managed, and among investment options, mutual funds are the most widely used.
Specialized investments provide focus and tax advantages. Like a 401(k) is designed for retirement, other funds are designed to supplement healthcare or education costs, often with tax advantages for your contributions.
Mutual funds typically outperform conventional savings accounts, delivering better returns over the long term, and because they’re built for long-term investing, they’re ideal when you’re aiming for milestone goals down the road.
Stocks and bonds are usually included in mutual funds, but it’s also common to invest in these separately in your portfolio. Securities, commodities, futures and annuities are other common investing options too.
Each has their benefits and their fair share of complexities - which is why financial advisors are so popular.
Financial advisors can help you access more investment opportunities, they can handle transfers efficiently, they monitor your investments’ performance, and they can offer advice informed by their experience and how well they know you.
Independent investment tools like Robinhood, Stash or Acorns are popular self-guided alternatives. These mobile- and web-based services provide access to investments, free from advisors’ traditional fee structures and the conventions of traditional advice.
As you start to invest - on your own, with an advisor, or with your Bright Plan - take time to measure your tolerance for risk.
How much can you afford to lose without it impacting your financial security? Your tolerance will probably shift as you get older - and as you get used to how investments work.
Unlike most checking and savings accounts, most investments aren’t FDIC insured. Which means you’re at risk of losing some or all of the money you’ve invested, depending on how the investment’s value moves.
There are both upsides and downsides to risk. The higher risk you’re willing to take, the more you’re likely to earn more - and the more you’re likely to lose, depending on the investment’s performance.
We started this topic advising you to work towards “a diversified and balanced portfolio.” Let’s talk about what that means.
A simple way to explain it: “don’t put all your eggs in one basket.” With an investment portfolio, that means ensuring your money is invested in different tools, across different sectors and parts of the economy.
If one stock falls sharply, others in different classes might not fall so hard. For example, if you put all your money in a local candle maker, but the candle maker is suddenly forced out of business, causing their stock value to tumble, you’ll lose everything. So you’d be wise to also invest in light bulb makers, ideally ones in another region of the country, as well as carpet makers or office suppliers or medical equipment manufacturers.
Diversification also means using different kinds of investments, ensuring your money is invested in different tools. For example, sometimes stock values can fall while bonds remain steady.
With the right diversification, you’ll have a portfolio that balances your risk, allowing you to make investments with higher risk knowing you also have investments that will likely remain steady.
Professional advisors and self-guided tools like Robinhood and Stash can help keep your portfolio on track.
Bright offers a third way, a new patented system built to deliver highly personalized financial services. With a Bright Plan, your investments are tailored to you and your goals, and they’re managed - automatically - with insight powered by data science, a uniquely responsive, high-performance way to invest.