One of the best qualities of successful investors is adaptability. While we Fools definitely advocate a buy-and-hold strategy, that doesn't mean simply buying stocks and forgetting about them until retirement. Once you get started, your investment strategy should change along with your life. Is losing your job a possibility? Are you expecting a new baby? With these and any other major life changes, your "big picture" strategy should change accordingly.
So you might lose your job...
If you have reason to believe you might lose your job, it might be time to get a little more conservative with your investment strategy. There is no need to free up cash yet, especially if you have an "emergency fund" stashed away, but prepare for the worst. The average unemployment period in the U.S. is 39 weeks, according to the Bureau of Labor Statistics, and it generally gets longer the higher your salary requirements are.
The point here is that you can't afford to take as much risk in your portfolio when you don't have a job. If you've had a steady job for decades and the market tanks, the worst-case scenario is that you keep your job for a few more years to make up for losses to your portfolio. If you don't have a job, you don't have the luxury of being able to add more to your portfolio. Not to mention if the market tanks, it would be even tougher to find a job.
Now you're investing for more than yourself
If you've had (or are planning to have) a new addition to your family, you now have 18 years (if you're lucky) of new expenses to plan for. The good news is there are great programs in place for tax-advantaged savings for college and your child's future in general.
Source: Flickr user 401(k) 2012.
The two most popular ways to save for college are the Coverdell Education Savings Account and the 529 Plan. Both plans allow your money to grow tax-free while invested, and any withdrawals are tax-free so long as the money is used for qualifying educational expenses. The Coverdell account has lower contribution limits than the 529 ($2,000 per year), but it gives you the flexibility to use the money for any educational expenses, not just college, so if your kids end up in private high schools, it may be the best choice for you.
If you're already saving as much as you can, this should be a simple matter of changing your allocations a bit. If you have been contributing $500 per month to your savings, take $100 of that and put it in your kid's college account. You'll be glad you did later.
Once you've established accounts for your child, simply invest how you would for your own retirement. After all, the goals are similar (saving for an event years down the road), so the risk tolerance should be similar.
Always be ready to react
This is by no means an exhaustive list of life events that should trigger a change in your financial planning. There are tons of good reasons to tweak your risk level, your cash positions, and the types of accounts you stash your investments in. If you move, get divorced, receive a big inheritance, get a raise, or experience any other life-changing event, it'll be a good time to take a long hard look at your strategy.
Source: Flickr user 401(k) 2012.
An adaptable investment strategy will be a winner in the end, so every time there is a major change in your life (good or bad), take a look at your long-term investment plan and how you should tweak it for your new situation.
