Whether you’re entering the market for the first time or looking to bolster an already existing portfolio, tax season always presents a natural time to turn a critical eye on your investments and potentially make some much-needed moves.
But we understand if you’re feeling a little differently this time around—after all, we’re currently in the second-longest bull market in history (which many experts says is a stock-market bubble waiting to pop), and investors are patiently awaiting news from Washington regarding everything from President Trump’s forthcoming “review” of Dodd-Frank to Paul Ryan’s plan for tax reform.
But that doesn’t mean there still is plenty of things you can do right now to solidify your portfolio and make the most of your investment dollars. Below, we’ve compiled the best market hacks that’ll lock down your future, the smartest new investment mode that has everyone on Wall Street talking, and the top wealth-building tips you need to know right now.
1. Decide where you want to go
What does your perfect life look like five, 10, 20, 40 years from now? Where do you live? How will you spend your time? Whom, if anyone, will you be supporting? What makes good investment sense for most people may be in total disharmony with where you want to be. You need a plan that’s all about you—bespoke, not off the rack. Thinking out-of-the-box with the endgame in mind can pay off massively in your wealth-creation plans.
2. Invest in ETFs
Investing god John Bogle, the founder of Vanguard, loves exchange-traded funds, and you should too. For one, they cost much less than mutual funds because there aren’t monkeys behind them pulling the strings. Second, they’re more tax advantageous. “ETFs are tax-efficient and have lower turnover than actively managed mutual funds—just 3% of iShares ETFs distributed-cap gains over the past five years,” says Martin Small, head of U.S. iShares at BlackRock. So which ones to choose? “Investors should accentuate ‘good’ taxes with potentially higher-yielding ETFs such as dividend growth and preferred stocks,” he says.
3. Stop trying to strike gold
Chances are that your portfolio probably won’t outperform the stock market year after year. In fact, smart savers should simply aim to capture the average growth of the stock market. In Stocks for the Long Run, author Jeremy Siegel’s research showed that for the period between 1926 and 2006, stocks produced an average real return of 6.8%. “Real return” means return after inflation. Before factoring inflation, stocks returned about 10% per year.
4. Get a 360-degree financial advisor and accountant
Online tools might make it tempting to go it on your own. An hour of professional consultation may look expensive. But over your lifetime, one insight from that meeting might create hundreds of thousands of dollars of wealth. Get a financial advisor to look at your wealth from all angles, including your investments, career, business, home, family and will. As a doctor does with your physical health, you want an advisor and accountant that take a holistic approach to your wealth creation.
5. Try Defined Outcome Investing
Defined Outcome Investing limits the potential outcomes of an index or security (e.g., the S&P 500) to pre-set protection and return levels, allowing for a more controlled investment experience. According to Michael Riley, managing member of Coastal Management Group LLC, “Defined Outcome Investing will change the world of investing.” Riley also advises “buying index funds or ETFs with low fees when fear is palpable” to increase wealth.
6. Yes, for the Umpteenth Time: Diversify
Never bet on one horse or let yourself get spooked and pull your money when the market goes south. “Be diversified in your investments and dollar-cost average,” says Melissa Spickler, a Merrill Lynch financial advisor based in Michigan. Remember: When the market falls, that means stocks are on sale—the time to buy. “Stay invested when the markets fall. This is the biggest mistake people make is they panic and never go back in at the right time,” says Spickler.
7. Plan for emergencies
You will experience an emergency in your lifetime, so be prepared. You may lose your job and need to cover living expenses from your savings for several months. To prevent a drama from becoming a crisis, know what expenses you can cut in a time of emergency and what contingencies may exist for the large expenses. Sock away enough for six to eight months of living expenses.
8. Automatically invest your raise or bonus
Commit to saving 10% to 30% of your after-tax income. Then put it to work in investment vehicles that may reap big returns over the long term. “If you earn a raise, simply have the amount of the raise (after taxes) sent straight to pay down your credit card bills, sent to your retirement account or an investment account,” advises Robert R. Johnson, president and CEO of The American College of Financial Services. Because you haven’t gotten used to living off that cash, you’ll never miss it.
9. Set boundaries
Don’t watch your investments minute-by-minute—or even day to day—but do track them on a monthly basis. Study where your money is and just how well it’s performing.
10. Cut expenses
Watch your investment expenses like a hawk, and be ready to move in for the kill. “These can eat up your wealth in a way you wouldn’t believe, adding up to hundreds of thousands of dollars by retirement if you’re not careful,” says Arielle O’Shea, an investing and retirement specialist for NerdWallet. She recommends doing a fee audit early in the year, looking at investment expenses and account fees, then shopping around to see if you can get better deals somewhere else.
11. Skip that vacation home or boat purchase
Although they might be good lifestyle investments, typically neither are good financial investments. Boats are expensive and often become watery money pits. Second homes can cost a fortune to maintain. File your ego away and consider owning vs. renting a vacation home or staying in hotels.
12. Make sure your portfolio contains the lowest-cost investments
401(k)s often take advantage of their cozy name recognition to cold-heartedly pick your pocket. Over time, they can dramatically slow the growth rate of your money. Assuming a 7 percent annual return and fees and expenses of 0.5 percent, a 401(k) contribution of about $7,795 per year over 35 years will get you to $1 million. But if your fees are 1 percent higher (1.5 percent total), you’ll need to save $1,895 extra per year to make up for them.
13. Know that no amount is too small
If you haven’t started investing or haven’t boosted your amount a cent in years, do it. Today. “The person who sets aside $100 a month and actually invests that money will, in the end, be much further ahead than the person who waits for a good investment opportunity,” says Walt Woerheide, professor of investments at the American College of Financial Services and Frank Engle Chair of Economic Security Research.
14. Be tax-savvy
Even if your funds are managed passively, you can’t afford to take a hands-off approach to the tax implications of your gains. “BlackRock believes stock markets are in for an extended period of subpar returns, even with the recent rally. That means minimizing costs is more important than ever,” says Martin Small, head of U.S. iShares at BlackRock. “Investors should make this the year to be tax-smart by aiming to reduce capital gain distributions that are triggered when fund managers realize a profit on the sale of a security. Regardless of your fund’s return, you can owe taxes on it.”
15. Don’t keep up with the Dow Joneses
Unless you have a job in finance, you can’t exert much influence on the markets. So why waste you time glued to the indexes or watching Jim Cramer jump up and down like a meth-addled hobgoblin? Instead, focus on what you can control: Putting money in a broadly diversified, low-cost portfolio — and not dipping into that money.