Here’s a three-step investor playbook for 2018


Who could have guessed all of the things that happened in 2017? Between major changes to the tax code, the market reaching all-time highs and geopolitical upheaval all over the world, the past year has been one of constant change. We’re all wondering what new surprises are in store for 2018.

My take: Don’t worry so much about it. The markets might go up, or they might go down. The Democrats might take control of Congress, or they might not. And when it comes to investing, a long-term approach is critical.

Uncertainty can be frightening for investors, and it often leads to emotional decisions that might damage your financial future. The best thing investors can do is commit to a long-term strategy designed to weather all market conditions, both up and down. Time after time after time, studies have shown that in the long run, patient investors in well-diversified portfolios outperform heat-chasers who try to time every new fad.

Trying to time the market is about as safe — and as wise — as laying your retirement funds on the craps table.

With that in mind, here is a three-step playbook for the new year.

1. Don’t let poor tax planning crush your returns. With tax reform one of the most hotly debated topics of 2017, it’s no surprise that investors are worried about minimizing the bite the Internal Revenue Service will take out of their wallets. In fact, according to a recent study we conducted, 46 percent of affluent investors identified tax optimization as one of their biggest financial concerns, and nearly 1 in 4 named it their top financial goal for 2018.

The two most important things to keep in mind in terms of tax-optimizing your portfolio are tax location and tax-loss harvesting. Tax location involves understanding the advantages of different types of investment accounts, then making sure assets are allocated in a way that minimizes one’s tax liabilities.

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Tax-loss harvesting works by selling losses to offset realized gains. This can dramatically lower your overall tax bill and increase the amount of money left for retirement or other activities. Tax-loss selling works best with individual stocks held in taxable investment accounts.

Remember: With taxes it’s not about the money that you make, but rather about the money you keep.

2. Don’t be fooled by false diversification. We’ve all heard the expression “There’s safety in numbers.” And while there are no guarantees when it comes to investing, the same mind-set applies in both up and down markets.

Right now affluent investors are optimistic about the stock market’s direction, with nearly half expecting the market to perform better in 2018 than in 2017, according to our research. But at the same time, 42 percent are fearful that their portfolio can’t withstand a market downturn, and 38 percent are worried that they’ll lose their wealth.

So what’s an investor to do? Make sure they’re properly diversified.

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