With an economy still on the mend and unemployment stubbornly high, it's important to make the best investing decisions for you and your family. The best strategy blends managing risk while investing to get the most bang for your buck.
Take these baby steps and follow the rest of Bankrate.com's 100 tips for 2011 and you can improve your financial life in the coming year.
1) Define or refine your life goals
What do you want out of life?
The trend in financial planning is to work with people to help them determine what they want out of life, and then establish financial objectives that will facilitate the client's ability to achieve those life goals. Money becomes the catalyst instead of the goal.
Don't get drawn into the vague generalities of a comfortable retirement, an education for your children or travel abroad. When you know what you're working toward, you'll be more committed to investing for those goals. The Bankrate feature, "Use investments to reach your goals," can help you get started.
2) Get the big picture of your financial plan
Financial planning is a lot more than just managing your investments. A comprehensive financial plan looks at the big picture. It includes a review of your insurance, employee benefits, income taxes, investments, retirement and estate planning, as well as personal financial statements, your attitudes toward risk, and your goals.
A good planner is the captain of your financial ship. The Certified Financial Planner Board of Standards Inc. has a wealth of consumer-friendly information, including the publication "How to choose a financial planner." The Bankrate feature, "Financial planners: not just for millionaires anymore," gives additional insight.
3) Create an investment policy statement
Whether you do it yourself or work with a financial planner, you should have an investment policy statement that serves as a guide on how you want to invest.
This guide should include the investor's philosophy toward investing, investment objectives, the investor's attitude toward risk, a target asset allocation, guidelines for monitoring portfolio performance and an approach to portfolio rebalancing.
Other items should cover tax considerations, estate planning goals, fees and expenses, and trading costs. It should spell out an approved list of investments, and whether the investor allows trading on margin, short selling and investing in derivative securities. And it should also spell out whether the investor's account allows discretionary trading by the account manager.
4) Know your risk tolerance
Know how you feel about risk in investing.
The "Investment Risk Tolerance Quiz" offered by Rutgers University's New Jersey Agricultural Experiment Station, can give you a quick read on your risk tolerance. If you find yourself tossing and turning at night and it's not your mattress but rather the markets keeping you awake, then it's time to dial down the risk in your portfolio.