Finances in Focus

Chasing after a “hot” investment — By the time you hear about a supposedly “hot” investment, it may already be cooling off. But even more importantly, it might not have been appropriate for your diversification needs in the first place, especially if you already own similar investments.

Investing too aggressively — To achieve your long-term goals, such as a comfortable retirement, you will unquestionably need to own a reasonable percentage of growth- oriented investments in your portfolio. However, the greater the potential reward, the greater the risk, so you don’t want to go overboard by investing too aggressively.

Investing too conservatively — Some types of investments can offer a high degree of preservation of principal. But they carry their own type of risk — the risk of not keeping up with inflation. Consequently, just as it’s not a good idea to invest too aggressively and own only growth-oriented investments, it’s also not wise to invest too conservatively by owning only those vehicles that sacrifice growth potential for principal protection.

Following the crowd — In many arenas of life, you’ll find that it may make sense to go your own way rather than “follow the crowd.” And that’s usually the case with investing, too. It’s quite common for the “crowd” to collectively make an unwise investment decision so make your choices based on your individual needs, goals, risk tolerance and time horizon.

Taking a time out from investing — After sustaining big losses during the financial crisis of 2008, many investors decided to take a “time out” from investing which meant they may have missed out on the rally that began in 2009 and ultimately resulted in the financial markets achieving record highs. The best investors just keep on investing right through market downturns — and, quite often, their persistence is rewarded.

Overreacting to the headlines — Too often people will make long-term changes to their investment strategy in response to short-term news events, such as political turmoil, a bad economic report and even natural disasters. You’ll likely help your cause tomorrow by not overreacting to the headlines today.

Underreacting to changes in your life — You will experience many changes in your life, such as a new job, new boy or girl friend, break-up with a longtime partner, a new home and so on. Many of these changes may require altering your investment strategy. You could jeopardize your progress toward your financial goals by not reviewing this strategy regularly (at least once a year) in consultation with your financial advisor, CPA or estate planner and making the necessary adjustments in response to your evolving life.

By staying away from “scary” investment moves, you may well find that investing can be a positive, productive experience. And that’s not a frightening thought at all, regardless of whether Halloween is still ahead or in your rearview mirror.

Speaking of this time of year, at many places of work, it’s “open enrollment” season — the time where you get to make changes to the various benefits you receive from your employer. As you review your overall benefits package, what areas should you focus on?

Here are three possibilities:

Life insurance — If your employer offers life insurance as a benefit and you haven’t already signed up for it, consider adding it during the open enrollment period because life insurance can be important to your and your partner’s financial security. If you already have life insurance with your employer, you may want to take the time, during open enrollment, to review your beneficiary designations. If you’ve experienced a change in your situation, such as a boyfriend walking out on you or a new love or the death of a partner or brother or sister you’ll likely want to update your beneficiaries, as needed.

However, the amount of life insurance offered by your employer in a group policy may not be sufficient for your needs, so you may want to consult with a financial professional to determine if you should add private or individual coverage, too. You may find that individual coverage is comparable in terms of cost to your employer’s offering. Also, individual coverage is “portable” — that is, you can take it with you if you change jobs, which not all employer-back schemes will permit. Be sure to ask if you are in doubt.

Disability insurance — Your employer may also offer disability insurance as a low- cost benefit. The coverage can be valuable. In fact, nearly one in three women and about one in four men can expect to suffer a disability that keeps them out of work for 90 days or longer at some point during their working years, according to the Life and Health Insurance Foundation for Education (LIFE). Again, as was the case with life insurance, your employer’s disability policy may not be enough for your needs, so you may need to consider additional coverage, especially if you work in what is termed a “high risk” profession.

Retirement plan — Your employer may offer a 401 (k) or similar retirement plan, such as a 403(b) plan, if you work for an educational institution or a non-profit organization or a 457(b) plan, if you work for a governmental unit. All these plans offer the chance to contribute pre-tax dollars so the more you put in, the lower your taxable income. Equally important, your earnings can grow tax deferred, which means your money can accumulate faster than if it were placed in an account on which you paid taxes every year.

Consequently, try to contribute as much as you can possibly afford to your 401(k) or other employer-sponsored plan. If you’ve had a raise recently, consider boosting your contributions during open enrollment. Also, take this opportunity to review the array of investments you’ve chosen. If you feel that they’re underperforming and not providing you with the growth opportunities you need, you may want to consider making some changes. You might also think about making adjustments if your portfolio has shown more volatility than the level with which you are comfortable.

Open enrollment season gives you the perfect opportunity to maximize those benefits offered to you by your employer so think carefully about what you’ve got and what improvements you can make — it will be time well spent.

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