A CERTIFIED FINANCIAL PLANNER™ plays a critical role in helping you navigate the complexities of investing. Whether you’re new to investing or have been in the market for years, having a CFP® by your side ensures your portfolio aligns with your long-term goals. 

Several strategies are worth considering and discussing with your financial planner. The right mix of investments, risk management techniques, and tax-efficient strategies can significantly improve your financial security.

Diversify 

Diversification is a cornerstone of investing. It involves spreading your investments across different asset classes, like stocks, bonds, and real estate. The goal is to reduce the risk that a poor performance in one investment will significantly impact your overall portfolio. Your CFP® professional can help you analyze your risk tolerance and determine the appropriate allocation of these assets.

Stocks historically have generated higher potential returns over long periods of time.  There is increased risk in volatility in short periods of time.

Bonds are generally considered safer, offering more stability but lower returns. 

Real estate can hedge against inflation while providing steady cash flow through rent. 

A well-diversified portfolio may also include international investments,

When discussing diversification with your CFP® professional, it’s important to understand how your portfolio can be structured to weather market downturns without sacrificing too much in returns. Your CFP® professional will guide you through rebalancing your portfolio periodically, ensuring it stays aligned with your goals and risk tolerance.

Tax-Advantaged Accounts

One of the best ways to maximize your investments is by taking advantage of tax-advantaged accounts like IRAs, 401(k)s, and Health Savings Accounts (HSAs). These accounts offer tax benefits that can enhance the long-term growth of your investments. 

With a traditional IRA or 401(k) plan, contributions are tax-deductible, meaning you don’t pay taxes on the money you invest until you withdraw it in retirement. 

Roth IRAs require you to pay taxes upfront, but qualified withdrawals in retirement are tax-free.

HSAs, available to those with high-deductible health plans, offer a triple tax advantage: contributions are tax-deductible, the funds grow tax-free, and withdrawals for qualified medical expenses are tax-free. 

Even if you don’t anticipate significant healthcare expenses, HSAs can function as a supplemental retirement savings vehicle because funds not used for medical purposes can be withdrawn penalty-free after age 65.

By working with your CFP, you can determine how much to contribute to these accounts and how to invest the amounts you contribute. 

Dollar-Cost Averaging

Dollar-cost averaging is a strategy that involves investing a fixed amount of money at regular intervals, regardless of market conditions. It helps mitigate the risk of making significant investments during market peaks and allows you to take advantage of lower prices when the market dips. Over time, dollar-cost averaging can reduce your average cost per share and smooth out the stock market's volatility.

A CFP® professional can help you identify whether dollar-cost averaging is a suitable strategy for your financial situation and how it can fit into your overall investment plan.

Exchange Traded Funds

Passive ETFs (Exchange-Traded Funds) have become increasingly popular among investors due to their simplicity and cost-effectiveness.

Passive ETFs tend to have lower turnover compared to actively managed funds, resulting in fewer taxable events for the investor. This can lead to greater tax efficiency, especially in taxable accounts.

Overall, passive ETFs are ideal for investors looking for a low-cost, diversified, and hassle-free way to gain exposure to broad markets or specific sectors, without the need to actively manage your assets.

Last, in addition to lower fees and tax inefficiency, passive ETFs offer liquidity, simplicity, and broad diversification.  A CFP® professional can help you analyze your current strategy and see if a passive ETF strategy would potentially increase your long-term portfolio returns and lower your taxes.

Tax-Loss Harvesting

Tax-loss harvesting is a strategy used to minimize taxes by selling investments that have declined in value. It can be beneficial in reducing your tax liability, especially when you have realized significant gains from other investments. When you use a tax loss harvesting strategy, you can use the capital loss to offset capital gains.

The Role of Bonds

Bond prices tend to fall as rates increase, resulting in lower returns for bond investors. Your CFP® can help you understand the impact of interest rate movements on your bond holdings and suggest strategies to mitigate this risk.

One option might be to consider shorter-duration bonds, which are less sensitive to interest rate changes. Another strategy could involve diversifying your bond holdings by incorporating inflation-protected securities.

Final Thoughts

Working with a CERTIFIED FINANCIAL PLANNER™ allows you to customize your investment strategy to fit your unique financial situation. 

By discussing critical strategies like diversification, tax-advantaged accounts, dollar-cost averaging, and tax efficiency, you can create a plan that helps secure your financial future. 

Disclaimer: Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through TOP Private Wealth, a registered investment advisor and separate entity from LPL Financial.