When to Change Your Investment Strategy


While you may not have the investing prowess of a Warren Buffett, you should know when to switch up your investment strategy. Many newcomers to investing simply pick a few funds to invest in and hope for the best. While it’s fine to pursue this path for a short while, you should eventually develop a more sophisticated plan.

Here are a few scenarios that might encourage you to shake up your investments.

Having a child

The arrival of a baby marks an exciting new chapter. As wonderful as this experience can be, it’s important that you revisit your investment strategy. After all, raising a child is expensive.

To help you start saving for your child’s college education, consider taking take some of the money you would otherwise invest in stocks, bonds, or mutual funds and putting it into a 529 account, which is a flexible education savings plan operated by a state or educational institution.

“You can change the beneficiary of a 529 account at any time, so if your child gets a scholarship or does not want to go to college, you can transfer the account to another child or to yourself for a graduate degree,” says Tanina Linden, a financial planner based in Leesburg, Virginia.

“Contributions to a 529 are also state tax deductible, and all the earnings and growth are also federal tax free,” Linden adds.

Investing in your child’s college tuition early is a great idea, even it means cutting back on risky but potentially lucrative investments. You’ll thank yourself in 18 years.

Switching careers

If you’re thinking about changing professions, you might want to invest more conservatively until you land a new job. Even if you’d be able to rely on an emergency fund to help pay the bills, it would still be prudent to remove some of the more volatile investments from your portfolio. Remember, you can always return to them after finding a new gig.

The same advice applies to anyone who has recently lost a job. Although building a strong investment portfolio can help you save money for retirement, it’s more important to have a steady source of income. In other words, don’t let your long game impede your short game.

Nearing retirement

As your golden years approach, you may want to consider shifting more of your asset allocation to bonds, which tend to be less risky than stocks.

“Let’s say you’ve pursued an aggressive growth strategy to grow your nest egg over the last 20 years. If so, upon retirement, one could consider dialing back the risk by reducing the amount of stocks in the portfolio,” says Jeffrey Stoffer, a financial planner based in San Rafael, California.

“You should be aware that you will still need growth and therefore it would be inadvisable to be too conservative in your asset allocation,” Stoffer says, adding, “Pick an allocation of investments that satisfies your need for growth and income, and your ability to take risks.”

Stoffer highlights an important point. Ultimately, investing is all about the number and magnitude of risks you’re willing to take. When you were younger (and perhaps single and without children), you could afford to take more risks. If stocks fell, there was always the chance that they’d recover over time.

Once you retire, though, your risk tolerance – or the loss you’re willing to incur before changing your strategy – should begin to shrink, because you won’t have that steady stream of income to fall back on.

Final thoughts

When it comes to investing, the importance of flexibility and adaptability should never be underestimated. Certain milestones, like welcoming a child, changing careers, or retiring, will require a change in your investment strategy. The world of investing can be a volatile place, and the better prepared you are for its ebbs and flows, the better off you’ll be financially.

Tony Armstrong is a staff writer at NerdWallet, a website devoted to helping consumers make smart financial decisions. 


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas , Retirement , Stocks

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