This year’s treacherous markets are a stark reminder that we live in an uncertain world.

The economy expands and contracts. Interest rates rise and fall. Markets go up and down.

And no one warns you ahead of time.

It’s a bit disturbing, especially when your savings are on the line.

Wouldn’t it be great if you could bulletproof your investments so you’re ready regardless of the future?

Actually you can. All you have to do is follow 10 battle-tested principles that have stood the test of time…

1. Don’t try to predict the economy.

The national and global economy today is too large, dynamic, and complex for anyone—from corporate CEOs to central bank presidents—to accurately predict.

So if you’re managing your portfolio based on someone’s guess about how long the economic boom will last or when the next recession will hit, you’re already on the wrong foot.

Twice a year The Wall Street Journal polls 55 of the nation’s leading economists and asks what they expect of the economy ahead, interest rates, inflation and the dollar. Most are far away. (Their consensus isn’t so hot, either.)

It got to the point that even The Wall Street Journal employees joke. Reporter Jesse Eisinger writes…

Pity the poor Wall Street economist. Big states, complex models, piles of historical data, degrees from schools known only by the name of the biggest benefactor, and still they make predictions about as well as groundhogs.

Punxsatony Phil might have the upper hand on most of them.

2. Don’t time the market.

It seems so simple when you look at a chart of past bull and bear markets. If only you entered down here and then somewhere else there and then back around here.

As they say in New York, “Fuhgeddaboudit.”

Trying to switch into a bullish market and ride out corrections – or just call major reversals every ten years or so – is a waste of time and money.

This cannot be done.

Of course, anyone can make a good call. (And don’t think they won’t keep reminding you.) But to successfully time the market, you have to do at least three things: you have to buy at the right time, get out at the right time, and then buy back at the right time. Otherwise, the plane will leave you at the airport… because the long-term direction of the stock market up.

Vanguard founder Jack Bogle calls market timing a “loser’s game” and adds, “After nearly 50 years in the business, I don’t know anyone who has done it successfully and consistently. I don’t even know anyone who knows anyone who has.”

3. Save more.

The 2022 Retirement Confidence Survey found this millions of Americans are woefully unprepared for retirement. The biggest reason they haven’t saved enough.

More than a quarter of American workers (19%) have less than $1,000 set aside for retirement. Twenty-seven percent had less than $10,000 saved. And a third have accumulated less than 25 thousand dollars.

Today, millions of Americans trust the government to provide the material happiness they deserve by relieving them of worry and discomfort.

Unfortunately, the average retiree receives just $1,669 a month in Social Security. (If you include spousal benefits, it rises to $2,509.)

To provide a comfortable retirementyou need to save as much as you can, for as long as you can, starting as soon as you can.

4. Assets to distribute your portfolio.

Asset allocation is the process of finding the optimal mix of investments for your portfolio.

I’m not talking about what securities you buy. Asset allocation refers to how you allocate your assets between stocks, bonds, and other uncorrelated assets to give yourself the best chance of achieving your financial goals while taking on as little risk as possible.

Asset allocation is your biggest investment decision, responsible for about 90%. the long-term profitability of your portfolio.

What is the best asset allocation? Opinions differ. But the Oxford Club recommends an asset allocation of 30% US stocks (split equally between large- and small-cap stocks), 30% international stocks (split in thirds between Europe, Asia and emerging markets), 10% in value bonds, high-yield bonds and Treasury Inflation-Protected Securities (TIPS), and 5% each in real estate investment trusts and gold mining stocks.

Over the past 20 years, this blend has outperformed the S&P 500 index while taking significantly less risk than investing entirely in stocks.

5. Balance your portfolio.

Each of these asset classes should generate returns that exceed inflation in the long run. However, they will not move in step. And that’s good.

Once a year – the date doesn’t matter – you need to rebalance your portfolio. This means returning the portfolio to its original interest by selling the asset classes that have appreciated the most and directing the proceeds to the assets that have lagged the most.

Doing it forces you sell high and buy low. This adds approximately one point per year to your overall return while reducing risk as you reduce the assets that last the longest.

It may seem wrong to eliminate some of the asset classes that have performed well. (After all, with individual securities, the goal is to make your returns grow.) But asset classes move in unpredictable up-and-down cycles. Rebalancing takes advantage of this.

In short, investors should ignore the sounds of market timers and economic forecasts, save moreproperly allocate assets and rebalance annually.

Covering these bases will keep you on track achieve your most important financial goals.

But if you really want to make your portfolio bulletproof, there are five other steps you need to take as well.

I’ll talk about it next week.

good investment


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