The world of investing is full of things you shouldn't do: Don't get sidetracked by market noise; don't follow the crowd; don't put all your investing "eggs" in one basket.
That's all very well and good, but what should you be doing to take control of your retirement planning and make smart saving and investing choices?
In addition to determining your retirement goals -- and developing a long-term strategy to reach those goals -- here are six things you should do to help you remain in control of your nest egg and your future:
1. When it's time, sell a bad investment.
Everyone gets attached. Maybe, when you first owned it, an investment made a lot of money. Maybe it's your employer's company stock, or maybe you just like the name of it. On the flip side, you may hate an investment because it's handed you big losses. But you stick with it, hoping to make your money back before you sell.
Regardless of the reason, no one will judge you for ditching an investment that's no longer good for your portfolio. The bottom line is that your portfolio should represent the most appropriate investments for your personal situation. Don't worry about past gains and losses -- only consider the future.
2. Embrace the "less is more" mentality.
You really don't need to hold a large number of mutual funds in your portfolio just because you can. To be diversified, it's not enough to own a bunch of funds -- you have to own different kinds of funds across different asset classes, and those funds should work together in a holistic approach to help you reach your goals. From a strictly numbers standpoint, there isn't an inherent advantage to investing in 25 funds versus five or 10. Over-investing just means more funds to track, and you could run the risk of having similar funds within the same asset class. Instead, choose the funds from each asset class that best fit your risk tolerance and investing objectives, and stick with those.
Also, you should avoid becoming over-concentrated in one fund. A good rule of thumb is to invest no more than 15 percent of your assets in any single fund.
3. Remember to rebalance.
If you're enjoying a hot streak in one asset class, it may be tempting to leave your account unbalanced and "let it ride." But remember, streaks end, and you've selected a diversified allocation because it helps alleviate risk.
Rebalance your account regularly to bring it back in line with your allocation -- one based on your risk tolerance, investing timeline and market conditions. If you don't rebalance, you're reducing the benefits of diversification and disregarding your own investing needs.
4. Re-evaluate your risk tolerance.
Resist the urge to get carried away with risky investments during an upswing. Instead, remember how you've felt each time your portfolio has lost money, and stick to an investing plan that reflects your level of comfort with risk. Revisit your risk tolerance annually or whenever you experience a major life change (such as a marriage, divorce, or birth of a baby) to ensure that it's based on your current situation and feelings about risk.
5. Follow your own path.
Investing can be scary, so it's natural to want to stick with the herd. But history shows the herd isn't particularly wise. It's fueled by emotion and frenzy and generally doesn't make the safest or best investing decisions. Remember that your coworkers, neighbors, relatives and other acquaintances are in no position to understand your finances or your investing goals. Your strategy should be highly personal – there's no "one size fits all" approach.
6. Make clear-headed investment decisions based on facts.
Mutual funds don't have emotions. They don't care whether you switch to a different fund or change your allocation. Only you have emotions, so wait a few days to calm down before you make any big portfolio changes. Emotional investing without the facts will only hurt you.
This isn't an all-inclusive list by any means, but it's a good start. While the exact route to a successful retirement might look different for everyone, it's likely that most investors get there using the same map: by devising a plan, putting said plan into action and following it through. Embrace these investing behaviors, too, and you'll be well on your way to achieving your financial goals.
