It's entirely possible to approach investing the same way as the Boston Celtics did this past NBA season, working in the same style to achieve lifetime goals and come away feeling like a champion.
BOSTON — It’s entirely possible to approach investing the same way as the Boston Celtics did this past NBA season, working in the same style to achieve lifetime goals and come away feeling like a champion.
To win the big game in investing, your fund “team” — your portfolio — must have:
• A coach and general manager who get the right players and put them in a position to succeed.
This is your job, or the role of your financial adviser, to create and follow an asset-allocation game plan.
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The investing game can be won with many different approaches. You can be conservative and defensive, aggressive and growth-minded, or some balance of the two.
You must also decide when to try to run up more points to put the game away or to protect your lead because the game is won.
• Enough good players to score points.
Build your portfolio by setting return expectations, and relying on certain investments to deliver. Your core selections will play different positions — they could be hyperaggressive or ultraconservative depending on your time horizon and needs — but their potential determines the kind of score you can put on the board.
Like the Celtics’ “Big Three” of Kevin Garnett, Paul Pierce and Ray Allen, your central investments must be ones you can build your game plan around, where you can be comfortable giving them the burden of carrying the biggest chunks of your money.
• Support players for flexibility.
In basketball, these guys support the stars so that the team can survive when the big guns are not generating offense.
In your portfolio, these are the issues that diversify your holdings. They may not play a starring role, but they keep things rolling; if domestic and international large-cap funds are your core holdings, for example, the support players will be the emerging markets, sector and income funds that spread out the risk.
• Players who know their job (and don’t try to do more).
Role players are key to a team or a portfolio. You can’t win in the long run with all growth-oriented funds any more than a basketball team could win putting three-point guards on the floor.
Every fund on your team should have a specific job. If they drift unexpectedly from one type of assets to another, or prove incapable of delivering results that are representative of their asset class, it’s time to get funds that are a better fit.
• A game plan, a goal.
In investing, falling short of your goals can mean adjusting your lifestyle forever. Play the investing game with concrete targets. Then design a strategy (or strategies, because you may have one plan for college savings, another for retirement and so on) that leaves you feeling confident you can rack up enough points before time runs out.
Chuck Jaffe is senior columnist at MarketWatch. He can be reached at email@example.com or Box 70, Cohasset, MA 02025-0070.