Define goals, examine finance to boost portfolio

Vitamins are the building blocks of a healthy diet, and savings are the foundation for a portfolio. Whether investors have deductions taken directly from their paychecks or they simply set a little money aside each month, they should save on a regular basis.

Once the concept of saving is down pat, it’s time to consider ways to shape up a portfolio.

Goals

First, investors should consider goals and why they are saving in the first place. Perhaps it’s for retirement, a child’s education or the trip of a lifetime. Determining the reasons that motivate investment will indicate which investments to consider, because the investor knows when – and why – the money is needed.

Second, before taking the leap into buying stocks or bonds, the investor should look at where current finances are. If there are considerable credit card bills or high interest loans, consider paying those off before getting started. It is important to invest early so there is more time for investments to grow, but investors can really lose ground by paying out more money to service a debt than the investments are bringing in.

For example, if an investor were paying 18 percent interest annually on a credit card balance while making 5 percent from an investment, he would be better off financially if the credit card bill is paid down.

Diversification

Making sure that holdings are diversified should follow the outlining of goals and examination of current finances. Investors’ holdings should have an adequate mix of stocks, bonds and even cash, depending on how much risk the investor is comfortable with. Within each type of investment, there should be further diversification. Stock holdings should be in a variety of sectors, such as energy, technology, health care and financials. The fixed-income portion of a portfolio also can be allocated across a range of maturities and interest rates and even types of bonds, such as corporate or municipal.

When purchasing stocks, investors should look for companies with strong fundamentals, such as a strong balance sheet and cash flow statement. Also, they may want to think about purchasing shares of companies that consistently deliver dividends.

Finally, investors should seek help if it’s needed. Sometimes one of the best investments that can be made is talking with a financial consultant about goals. They can typically help show what investment options are available and make sure investors are on the right path toward achieving goals and dreams.

Just as people might set goals for their ideal weight and work to achieve it, investors should set healthy financial goals. Regardless of how investments are performing now, there is always time to whip a portfolio into shape.

Timothy Reese is senior vice president, investments, with A.G. Edwards & Sons Inc.